Tesla's Musk Could Settle SEC Costume But Ready To Fight: Sources

(Reuters) – Tesla Inc (TSLA.OElon Musk may settle with US regulators who have filed a lawsuit to remove him from the electrical manufacturer's leadership, but he is willing to fight the securities fraud suit against him, sources said on Friday.

Musk, President and CEO of Tesla, has been directly involved in almost every detail of its product and technology development strategy and is seen as the engine behind the deficit company's ability to raise capital.

The cost of Tesla's debt default insurance reached its all-time high on Thursday, and the fall in prices attracted new short sellers, who bet on the stock. According to S3 Partners, short sellers cashed $ 1.27 billion Thursday in paper profits alone, and Tesla recently picked up the shortest US title.

The Securities and Exchange Commission (SEC) of the United States accused Musk on Thursday of tweeting false and misleading information in August over the funding of his now-abandoned project to take over private enterprise, and said that He was trying to remove him from office.

The billionaire entrepreneur said he had done nothing wrong and that the company's board had supported him.

Musk, 47, withdrew at the last minute from an agreement with the SEC that would have forced him to give up key executive positions within the company for two years and pay a nominal fine, according to information published on Friday.

But sources, who requested anonymity because they were not allowed to publicly discuss the case, told Reuters that even though Musk was ready to go to trial he could always resolve himself. They did not discuss possible terms.

CNBC reported that Musk had refused a SEC deal to relinquish its role as president, while Fox Business Network reported that Musk had been proposed a temporary ban as CEO.

Aeisha Mastagni, portfolio manager for the California State Teachers' Retirement System, a Tesla investor, is concerned about the board's ability to oversee Musk and the company and would like to see changes made to the Tesla board.

"I think this council is insular, ripe with conflict; This is the poster of poor corporate governance, "she said.

The board also does not have a director who could take over from Mr. Musk, said the chief investment officer of Cornerstone Capital, John Wilson. "The problem for investors is that an investment in Tesla is an investment in Elon Musk," he said.

Musk hired Stephen Best from Brown Rudnick, who successfully defended online billionaire Mark Cuban in a case of insider trading, according to people familiar with the plans and who also asked not to be identified. He also hired former US Deputy Attorney Chris Clark of Latham & Watkins to defend him in this case, the people said.

Tesla did not immediately respond to a request for comment. The SEC declined to comment on the settlement reports.

A person familiar with the SEC's thinking said Friday that the SEC's civil lawsuit or possible settlement did not prevent the Justice Department from taking tougher action on a criminal offense.

The Ministry of Justice declined to comment.

In a previous fraud case involving Theranos, the blood analysis firm, the Justice Department filed a complaint three months after the SEC announced its agreement with company founder Elizabeth Holmes.

"The SEC would not delay its action for the Department of Justice," said Teresa Goody, CEO of the Goody Counsel law firm and a former SEC lawyer.

FUTURE UNCERTAIN

At least five research companies have said Musk may have to resign after the SEC lawsuit.

"I think it was a serious mistake to refuse the offer of settlement," said CFRA analyst Garrett Nelson.

Some analysts said the SEC's action was the beginning of a legal battle with authorities, short sellers and other investors in Musk's shares that could cost Tesla dearly.

Musk has driven the company to the brink of profitability with ramping up production of its Model 3 sedan over the past year.

Electrek, an electric vehicle information site, said Tesla had produced 51,000 Model 3s with a few days of work during the quarter, reaching its target of 50,000 to 55,000 Model 3s.

"In the end, what he did was stupid, it was wrong, I do not think he'll be rejected," said a big Tesla investor, who asked not to be identified because sensitivity of the situation.

"I suppose he'll pay a big fine. I would not be surprised if, by way of settlement with the SEC, he relinquishes his role as chairman of the board.

Ihor Dusaniwsky, director of research at financial analyst firm S3 Partners, said in an email that he had seen several hundred thousand short selling shares in Tesla.

The short-term interest on Tesla shares amounts to nearly $ 10.2 billion, with more than 33.1 million shares sold short, about 26% of its float, he added.

Shares fell 13.9% to $ 264.77, wiping out about $ 7 billion from Tesla's market value.

(Graph: Chronology of Tesla shares – tmsnrt.rs/2IkPQ8S)

The SEC trial, filed in Manhattan federal court, ends a tumultuous two months set in motion on Aug. 7, when Musk told his 22 million followers on Twitter that he could take Tesla at $ 420 a month. action.

The regulator accused Musk of "knowing or being imprudent by not knowing" that his tweets were false and misleading.