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Elon Musk’s tweets could get Tesla in trouble with the SEC again

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Tesla’s new-and-improved board of directors appears to be just as bad at its job as it was before its recent makeover.

Directors of the electric car company are supposed to be keeping a close eye on CEO Elon Musk and specifically on what he says to shareholders. But as a pair of tweets from Musk this week made clear, that’s not happening. Musk still seems to be able to say pretty much anything he wants on Twitter — even if it’s deeply misleading or even false — and Tesla’s directors don’t seem to be doing anything to about it.

That could get them, and the company, into even bigger trouble than they’ve already seen if federal regulators decide to get tough.

Musk’s tweets had to do with the number of cars Tesla expects to produce this year. His first statement seemed unequivocal — the company would make about half a million vehicles in 2019.

That would be almost double the number Tesla made last year. Given how mightily the company struggled this year to ramp up production to even that level, 500,000 cars would seem like a steep challenge. That target was also significantly higher than what the company had previously suggested it would produce, which was somewhere in the neighborhood of 350,000 to 400,000 cars.

But it turns out that Musk didn’t really mean it. Some four hours after his tweet about 2019 production numbers, he followed it up with a second one in which he acknowledged that he misspoke in the prior post. When he mentioned the 500,000 number, he had actually “meant to say [Tesla’s] annualized production rate” would be that much by the end of the year. The company “still estimated” that it would deliver around 400,000 cars this year.

It’s unclear how many investors traded on the notion Musk conveyed in his first tweet that Tesla’s production numbers were going to be better than normal. Both tweets happened after the market closed. But it’s possible some investors bought the stock on the news in the after-hours sessions and then took a hit to their investments after the second tweet. Tesla’s stock declined in the next regular session.

It’s also possible that some investors bought shares later after seeing the first tweet; Musk hasn’t deleted it.

Tesla’s supposed to be monitoring Musk’s tweets

Regardless, things aren’t supposed to be this way at Tesla. Last fall, the company settled charges filed by the Securities and Exchange Commission over another set of Musk’s tweets. Those posts revolved around his proposal to take the company private and started with his infamous declaration that he already had “funding secured” for the effort. The SEC alleged Musk made the statements knowing full well that Tesla didn’t actually have funding in hand to go private.

As part of the settlement over those tweets, Tesla agreed to a series of steps intended to rein in Musk and give its board greater oversight of his activities, particularly his communications with shareholders.

Larry Ellison, Oracle’s executive chairman and a new Tesla board member, has shown he’s no paragon of corporate governance.
Justin Sullivan/Getty Images

The company agreed to name two new independent directors to its board, to replace Musk with an independent director as its chairman, and to put in place a board committee of independent directors that would set the policies that would govern investors communications. It also agreed to pre-approve any communications Musk made with investors, and to hire a securities lawyer who would review Musk’s tweets and other communications.

After the settlement, Tesla went about making the changes. It named Robyn Denholm, who was already serving on its board, as its new chairman. It added Larry Ellison, Oracle’s executive chairman, and Kathleen Wilson-Thompson, the head of human resources at the Walgreens Boots Alliance to its board as independent directors. And it hired Dane Butswinkas, who had already helped with its SEC dispute, to be its new general counsel.

But as Musk’s latest tweets made clear, Tesla’s new and revamped board and legal team is no more in control of its CEO than before all the changes.

Tesla’s board is much the same as before

This probably shouldn’t be a surprise. Except for the two directors, the board has the same members as before, with the same smell of cronyism; Musk’s brother Kimbal still holds a seat. Those directors are the same ones that lavished Musk with ridiculous amounts of stock options, and the same ones that have repeatedly failed to supervise him.

Read this: Tesla’s board is terrible at its job — it’s shown it has no interest in controlling Elon Musk or sticking up for investors

No one should be under the illusion that Ellison in particular would strengthen board oversight over Musk. Before joining the board Ellison, defended Musk and called him a “very close friend.” Ellison was on the board at Apple during a scandal over the backdating of stock options at the company in the 2000s. And Oracle has been repeatedly criticized for its corporate governance practices and excessive executive compensation.

Meanwhile, Butswinkas has already apparently thrown in the towel. He resigned from Tesla the day after Musk’s tweets about the company’s expected production this year after little more than two months on the job. He’s being replaced by Jonathan Chang, a longtime inside attorney at the company, which is another bad sign. With all the management turnover at Tesla in recent years, an attorney who has been there for eight years is not likely someone who has made many waves — or will challenge the CEO over his Twitter habits.

Butswinkas chose to leave “due to a poor cultural fit at Tesla” and because he wanted to return to his family and former law firm in the Washington, D.C. area, a company representative said in an email. In a statement, Butswinkas expressed his “tremendous confidence” in Chang.

The Tesla representative declined to answer questions about Musk’s tweets concerning Tesla’s production forecasts for this year, including whether Tesla preapproved the initial tweet, whether the company thought it was misleading, or whether it was doing an adequate job of overseeing his communications with shareholders.

But the representative did say that Butswinkas’ departure “in no way impacts Tesla’s settlement with the SEC,” adding that “Tesla remains in full compliance with the settlement.”

The SEC could come knocking again

Even as bad as Tesla’s board has been, one would have thought that the SEC charges last year would have jolted it out of its stupor. The company, after all, was forced to pay $20 million as part of the settlement. It also agreed that if there were a breach of the settlement, the SEC could attempt to resume the case in court.

That seems a real possibility. Separate from its investigation into the “funding secured” statements, the SEC has also been looking into Musk’s statements regarding expected and actual production rates of Tesla’s Model 3 — even before his latest tweets about them.

What’s more, the agency has an interest in making sure that companies adhere to the terms of the settlements it reaches with them; otherwise, why would anyone pay attention when it threatened to file charges against them? And Musk likely didn’t make many friends at the SEC when he dubbed it the “Shortseller Enrichment Commission” in a tweet soon after the agency filed charges against him related to the “funding secured” posts.

But it won’t take another SEC action against Tesla to make one thing clear: No matter how revamped the company’s board may be, it’s still worthless.

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