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When Thursday started, Elon Musk had an agreement on the table.
After days of tense negotiations, the Securities and Exchange Commission and Tesla's chief executive, Musk's lawyers, had agreed to a settlement ending a two-month-long drama that has plagued Wall Street and Silicon Valley.
According to the terms of the agreement, which began August 7 – when Mr. Musk reported on Twitter that he had "obtained funding" to place Tesla in the private at $ 420 per share – would end with some modest penalties and that Mr. Musk would remain in office. chief executive, according to two people informed about the talks.
The plan, as negotiated by the lawyers, was to have Mr. Musk leave his position as president of Tesla within 45 days and not resume that position for two years. The company, also party to the proposed agreement, would add two new directors to its board. Mr Musk and the company would pay tens of millions of dollars in fines, according to people who requested anonymity because they were not allowed to speak in public. Negotiators have planned to announce the deal Thursday after the markets close.
But for Mr Musk – an emotional, unstable and secure billionaire – the deal was unacceptable.
The settlement with the SC was an "neither admit nor deny" agreement, which means that Mr. Musk would not have admitted to knowingly committed a crime. But Musk would not have been allowed to say publicly that he did nothing wrong – and that was something he could not accept, according to three people familiar with the talks.
Thus, on Thursday morning, while the settlement papers were being drafted and press releases were being prepared, Mr. Musk left. The lawyers, Tesla executives and the company's advisers were stunned to see that he would turn away from such a favorable settlement.
And the S.E.C., taken aback, quickly changed course and increased the bar considerably. On Thursday afternoon, the agency sued Mr. Musk, seeking to prevent him from performing his duties as an officer or director of a public company. If he wins, Mr. Musk will lose the business that he co-founded. Tesla's stock fell 14% on Friday.
"The brand and the company's stock will suffer if it leaves," said Mike Ramsey, an automotive analyst at Gartner. "But I hate to say it, they could be better off."
Tesla jumped from crisis to crisis over the past year and strived to contain the fallout from Mr Musk's tweet, which sparked a market frenzy that propelled Tesla's shares to the up, and prompted federal regulators to determine whether Mr Musk had misled investors with a surprise statement that greatly overestimated the reality.
On Friday, the SC set a date for Feb. 1 for a preliminary hearing on the case, leaving Mr. Musk plenty of time to change his mind and accept a settlement, albeit potentially less favorable. But the trial, which could take years to be tried, will throw a cloud over society until the issue is resolved.
In recent weeks, the CO was preparing to send Tesla a notice regarding Wells, indicating his intention to bring civil suits against the company and Mr. Musk. But on Thursday, after the settlement talks collapsed, the USC narrowed its focus. Instead of trying to settle with the company and Mr. Musk, he sued Mr. Musk alone, according to someone close to the company.
After the commission began investigating Mr. Musk's Twitter claim, his lawyers sent two long letters to the regulators to argue that he had done nothing wrong, according to this person.
The letters described meetings that Musk had with officials of a sovereign fund in Saudi Arabia, which led him to believe that he had financial support to take Tesla privately, added the person.
For example, one evening in March 2017, Mr. Musk and Tesla's CFO dined at the Tesla factory in Fremont, California, with Larry Ellison, chairman of the Oracle board of directors , and Yasir Al Rumayyan, General Manager of Saudi Public. Investment background. During the meal, Mr. Rumayyan discussed the idea of making Tesla a private business and increasing the Saudi fund's participation in it.
More than a year later, the lawyers said that MM. Musk and Rumayyan had met at the Tesla factory on July 31. When Mr. Rumayyan again talked about privatizing the company, Mr. Musk asked him if anyone else at the fund had to approve such an important agreement. Mr. Rumayyan said no, according to the person familiar with the letters.
Representatives of Mr. Ellison and the Saudi Investment Fund did not immediately respond to messages seeking comment on Friday night. People familiar with the operation of the Saudi fund have previously stated that it has not taken any steps that such an ambitious transaction would involve, such as preparing a summary or hiring a financial advisor to work on the transaction.
Musk and other Tesla officials spoke to the Tesla council about talks with the Saudis, the lawyers wrote, according to the person familiar with the letters. On August 3, Mr. Musk shared his idea of the $ 420 share price with the board.
It was the information in the Financial Times of August 7 that prompted Mr. Musk to act, lawyers said in letters to the commission. A ringing sounded when he saw in the newspaper that the Saudis had acquired a significant stake in Tesla. He feared that word would reveal that an agreement to take Tesla privately was possible. So he started tweeting, the lawyers said.
The lawyers wrote that his tweets had been sent in good faith. He believed that the Saudis were able to make a deal and interested in making one and that what was left was a matter of detail, according to the person familiar with the letters.
A stumbling block for Mr. Musk in the draft S.E.C. model was the special status that he allegedly violated.
This law contains terms on misleading investors. Mr. Musk's lawyers wanted the commission to modify his claim by saying that he was simply negligent in his statement, according to someone familiar with the details of the negotiations.
Mr. Musk was concerned that these terms could mean for his other companies, SpaceX and Boring Company. He feared that the deal would compromise the ability of these companies to continue working for the government, added the person.
In a statement after the commission filed its lawsuit Thursday, Musk called the agency's law enforcement efforts "unjustified."
"I have always acted in the best interests of truth, transparency and investors," he said. "Integrity is the most important value of my life and the facts will show that I have never compromised that"
Musk's decision to move away from the settlement could complicate Tesla's future. He said the company would still be profitable by the end of the year, thanks to sales of its new car, the Model 3 mid-size sedan. But Tesla struggled to meet its production targets for Model 3 and continued to spend money while two bond payments totaling more than $ 1 billion will be payable over the next six months.
Tesla had $ 2.2 billion in cash at the end of the second quarter, but used nearly $ 1 billion every three months. It also has a debt of about $ 11 billion and owed $ 3 billion to its suppliers by June 30.
Musk said Tesla would not seek additional capital. But Garrett Nelson, an analyst at CFRA Research, said he believed Tesla would do it in the first half of 2019.
Mr. Musk's legal problems will only make it more difficult for the company to issue bonds or obtain other financing.
"The best example is that they can access capital, but it's more expensive than they would like," Nelson said. "The worst case is that they will not be able to raise capital."
Another uncertainty for investors is who will ultimately lead Tesla. Mr. Musk is Tesla's visionary, as is Steve Jobs at Apple, Nelson said, and self-confidence is one of the reasons why investors bet on Tesla shares.
"It's critical, in our opinion," Nelson said.
Neal E. Boudette contributed to the report.
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