Elon Musk’s Taunts Against SEC on Twitter Might Backfire

The settlement, which has taken place between Tesla and the US Securities and Exchange Commission, stipulates that CEO Elon Musk will no longer have the freedom to tweet. Still, on Friday, Musk managed to shoot off another tweet by calling the SEC as the Short Seller Enrichment Committee. The Twitter post from Elon Musk seems to violate the spirit of the recent settlement but still, the SEC does not have the power to stop the tirades of Musk. The settlement has to be approved by the Federal Judge Alison Nathan, which might take several weeks. She has asked both the SEC and Tesla to send a joint letter to explain why the settlement is appropriate before she gets down to review the case.  

Sources are worried that Elon Musk might make SEC appear to be irresponsible and without having any kind of strength of character. On the other hand, Musk is in an even more precarious situation. The stock of Tesla has gone down after the news of SEC taking action against the CEO. Later on, the markets had stabilized after the news of the settlement. Still, it was followed by a 7 percent fall on Friday after he mocked SEC on Twitter. If the share price of the company goes below $360, they will be caught in a really bad situation for nearly $1 billion in convertible bonds due this spring. The company already suffers from a shortage of cash and now with the payment of a billion dollars to bond owners, things could turn worse.

At this point in time, it is highly unlikely that SEC will try to modify the settlement that allowed Musk to stay as the head of the company while stepping down as its Chairman. Within a period of 45 days, Musk will be replaced by an independent chairman. Then, Musk will be ineligible for getting re-elected for up to three years. Tesla and Elon Musk will also be required to pay $20 million each as penalties. Still, there is a possibility that the Federal Judge might strike down the agreement. In case that happens, the SEC would most probably move towards enforcement. Then it would be highly unlikely that they will be as lenient in that case.