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  • DATVF.SEALAX
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    1.426
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    0%
  • ITVI.USA
    9,556.490
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  • OTRI.USA
    5.380
    0.120
    2.3%
  • OTVI.USA
    9,552.280
    -49.800
    -0.5%
  • TLT.USA
    2.570
    -0.030
    -1.2%
  • WAIT.USA
    150.000
    0.000
    0%
Legal issuesNews

Musk’s settlement with the SEC is a huge win for Tesla shareholders

Tesla and Musk will each pay $20M fine and Musk will resign as Chairman

In a dramatic turn of events, Elon Musk has settled a lawsuit with the Securities Exchange Commission that threatened to ban him from serving as an officer of a publicly traded company for life. The SEC made announcement on Saturday that the agency had reached an agreement with Musk and Tesla (NASDAQ:TSLA) that will result in Musk paying a $40M fine and will be forced to resign as Chairman of the company.

This looks to be a victory for Musk and Tesla shareholders. Much of Tesla’s valuation is tied into the Tony Stark-like worship that Tesla advocates have for Musk. Without him at the “wheel” of the company, the stock would likely settle into a valuation that is consistent with other auto manufacturers, with some analysts giving a Musk-less Tesla a valuation that is 1/3 of the current number. That would be dire for current shareholders and would put the company at the mercy of the markets for a secondary offering.

Musk must also step down as Chairman of the company, suggesting that a more seasoned executive will come in to run the Board. For stakeholders of Tesla bringing in adult supervision might bring some stability to the company and provide leadership the company desperately needs. The challenge will be finding an executive that is both willing to work with Musk and Musk is willing to accept as his boss. Musk is the largest shareholder and owns 20% of the stock of the company. He will certainly have a say in whom the next Chairman of Tesla will be.

While this seems to be the end of the SEC issue, the drama is unlikely over. Musk’s ego and identity are intertwined with Tesla. He is not going to appreciate having someone tell him how to act or run the company. Much like other celebrity CEOs that faced crisis, the saga is likely just beginning. If the Board chooses a powerful Chairman that overshadows Musk or challenges him, his story could end much like Steve Job’s first run with Apple where he was ousted by the executive he recruited to help him run the company, John Sculley.

Musk was neither the founder or the original visionary of Tesla. That credit goes to Martin Eberhard. In a 2014 article, Business Insider tells the story of how Musk took over the company founded by Eberhard. According to this fascinating piece, it’s apparent that Musk prefers to be portrayed by the media as a great visionary of the future. If a new Chairman challenges Musk in a way that makes him angry or the media starts to give credit to a more disciplined operator, no one knows how Musk will handle it.

The freight industry has also seen a similar situation play out: One involving a larger-than-life CEO, Swift Transportation’s (NYSE:KNX) Jerry Moyes. As Chairman and CEO of one of the largest transportation companies, Moyes was forced to settle with the SEC on claims that he insider traded Swift’s own stock. He was forced to step down as Chairman and CEO of Swift and couldn’t serve as a C-level exec of a public Swift any longer. Over the next decade the saga of Moyes and his battles with the CEOs that followed him were legendary for industry observers. The story finally ended in a dramatic merger with a much smaller Knight Transportation (NYSE: KNX) last year.

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