Is the "Reportedly" SEC Investigation Really Bad for Tesla?

According to reports from major media news outlets, The Securities and Exchange Commission has served Tesla with a subpoena.

First of all, we still don’t know if the news is true because CNBC says, “Representatives of Tesla and the SEC declined to comment to the Times.” If there is no official confirmation, how do we know that SEC is really intensifying its investigation?

As usual media outlets are citing sources for their story.

SCOOP: SEC ramps up investigation into Tesla privatization plans; sends subpoenas to Tesla regarding privatization plans and Musk’s statements involving “funding secured”–sources Subpoenas signal investigation has reached the “formal” stages — sources more now @FoxBusiness
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— Charles Gasparino (@CGasparino) August 15, 2018

Not a bad thing to do. But without official confirmation, there is no way to say for sure that the information from “sources” is 100% accurate. Let us assume that the sources are true and the SEC really sent a subpoena to Tesla.

How bad is it when a regulatory body that needs to protect investor interest asks for more details about an information that a CEO of a public company released to the public?

They just want to know if the information is true. They will only know when they ask for details.

Elon Musk took to Twitter to announce that he wants to take Tesla private. He added that he has secured the funding for his proposal to pay $420 per share.

Twitter and other social media outlets are accepted mediums for public companies to share information with investors. The SEC is not going to ask why Elon tweeted. They want to know if what Elon Musk said was true and if he had really secured funding as he claimed.

Though this all sounds news to many, in reality, we had a similar incident happen back in 2012, when Netflix CEO Reed Hastings shared information with investors on Facebook.

“As if Netflix didn’t have enough problems: The company announced today that it is being investigated by the SEC for a post that CEO Reed Hastings had made on his public Facebook page in June. In an SEC filing earlier today, Netflix reported that it received a notice from the regulator, which might seek a cease and desist or injunction against the subscription video company and its CEO.” – Techcrunch

What was Reed’s mistake?

Hastings wrote on Facebook that Netflix subscribers had watched more than 1 billion hours of video in June.

The SEC investigated. Then what happened?

A few months later the SEC announced via press release that “companies can use social media outlets like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Regulation FD) so long as investors have been alerted about which social media will be used to disseminate such information.” Read SEC’s full press release here.

The US Securities and Exchange Commission has wrapped up an investigation into whether Netflix CEO Reed Hastings broke federal rules by announcing company metrics on Facebook — and it’s decided Hastings’ decision was mostly justifiable. In a release, the SEC said that companies could fairly disclose key data on Facebook, Twitter, or other social media sites, so long as investors are told beforehand where information could be posted. – Verge

My Take:

If the SEC is investigating, then they are not after Tesla for using Twitter to share information with investors. It must be to figure out how Elon Musk came up with a $420 buyout price. How did he get to the $72 billion valuation for Tesla.

There are plenty of people who would really want to make a case that Elon Musk just came up with that number. The odds are less than zero for that to happen.

No one knew that the Saudis were talking to Tesla for nearly two years for a possible take Tesla private plan. We still don’t know if anyone else had approached Elon Musk in the last couple of years.

What do you think a high-profile company CEO and a possible investor of that stature might discuss? Their lunch plans or the health of their families? Hardly! The meetings will have inevitably focused on the valuation of the company and other related financial and strategy aspects.