Tesla agreement with SEC provides ammunition for US investigation and investor lawsuits

(Reuters) – Tesla's settlement with US regulators will help calm investors by calling for greater oversight of chief executive Elon Musk, experts say, while supplying ammunition to short sellers and a ministry investigation of Justice.

Musk and Tesla will pay $ 20 million apiece, bring two independent directors and ask the billionaire to step down as chairman of the board to settle charges by the US Securities and Exchange Commission that Musk has deceived investors.

This settlement is yet to be approved by a court and does not end the Tesla Department of Justice investigation into Musk's tweets or lawsuits by short sellers and other investors alleging losses and securities laws.

"The real concern of the company is not the SEC, but the private actions that follow such a settlement," said Charles M. Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. "By paying this fine, it reinforces investors' claims about losses in the stock market," he said.

Neither Musk nor Tesla have admitted or denied the SEC's findings in the settlement.

Musk reached an agreement with the SEC after his advisers convinced him that the conditions were favorable and that a lengthy court battle would not be in the company's interest, said a familiar person. with the agreement. Musk had wanted to personally pay the fine for Tesla, who had lost money, but the SEC rejected that proposal, said the person.

Tesla shares fell about 14% Friday, the day after the SEC accused Musk of deceptive investors, and are down 30% since the August 7th tweet.

Investor inquiries could result in substantial cash or equity settlements, Elson said. A stock settlement could eventually dilute Musk's approximately 19% stake in Tesla, further reducing its influence on the board.

Nevertheless, Tesla's shares could stabilize on Monday on the relief provided to investors by the fact that the sanctions would not be more severe and that the public face of Tesla would remain in the role of CEO under additional supervision, announced analysts.

Tesla is expected to release production for the third quarter this week, and investors are looking to see if it will meet its targets for Model 3, a high-volume car. It is unlikely to be known whether Tesla made a profit before publishing its financial results for the quarter.

The regulation released Saturday by the SEC "is a positive result for Elon Musk, Tesla and ultimately its shareholders," wrote RBC Capital Markets analyst Joseph Spak, adding that he hoped to recover his losses of the week last.

An expanded council and a new president offer hope that "real control over Elon will emerge and there will be greater accountability" for Musk's statements and its business objectives, Spak added.

Tesla and Musk eventually agreed to tougher penalties than the SEC had originally proposed to settle claims for compensation, according to the person familiar with the transaction. The SEC was initially prepared to accept a fine of a few million dollars and Musk's removal to the presidency for a two-year term, but she raised her demands after Musk refused the offer, the official said.