Monday, 01 October 2018 17:05

Are SEC's Sanctions on Musk a Blessing in Disguise?

Unless you have been living under a rock, you may have heard about the lawsuit slapped against Tesla’s Elon Musk by US financial regulator, SEC, thanks to a series of tweets he made about taking the firm into private ownership. The Securities and Exchange Commission believes that Elon misled investors, thus leading to a panic in the market even though the tweets had no basis.

In a tweet, Elon noted that he was thinking about taking Tesla off the stock market and structure up a go-private plan. In fact, he went ahead to claim that he had funding secured already for the proposal that would see the value of Tesla go for $420 a share. When Elon later clarified that it was indeed just a joke, the Sec was not amused and decided that apart from fining both Elon and Tesla, he should be barred from running the company. These sanctions did not go well with investors who noted that this would spell doom for the already struggling car maker.

The SEC was especially furious that Tesla had not put in place the required disclosure controls and procedures that would help guide Musk’s tweets. As such, the SEC noted that the company was in no position to determine the accuracy of the information contained in Musk’s tweets.

As a true entrepreneur, you would agree that you always learn more from mistakes than from successes. As such, this case pitying Tesla’s Musk and the SEC may be seen on the flipside as a blessing in disguise for the company. As much as investors have cried out loud terming SEC’s course of action as unfair to the loss-making car maker, this may not be the case after all. In fact, the action taken by the SEC are a mere slap on the wrist for Musk considering the magnitude of damage he may have caused with his careless remarks.

To take you back a little, Musk, and Tesla are bound to pay a $20 million fine each to resolve the fraud suit filed by SEC, even without admitting or denying any guilt. This puts an end to a scandal that would have spelled doom for Tesla. Looking at it critically, SEC’s other non-monetary penalties may actually do more good than harm to the company.

One of the directions made by the SEC to the company includes striping Musk of his chairmanship and in his place appoint new independent directors to the board. In addition to this, Tesla has now been tasked with monitoring and managing Musk’s tweets that have hitherto been known to be confusing and misleading. Basically, SEC is asking Musk to keep off commenting on anything related to Tesla on twitter. This is more of a priceless advice to Musk than a penalty.

Taking these non-monetary penalties in consideration, you would realize that they are bound to fix the critical weaknesses that have hitherto been known to be synonymous with the company. Tesla’s current board is one of the weakest and which is made worse by the fact that it is mostly made up of family members and cronies. This has given Musk free reign that has also seen him overpromise customers and investors. With new management in the company’s board, fresh blood and new way of management will be pumped into the company and in no time, the company will be back to its profit-making ways.

As much as SEC’s sanctions are strict, they are not overly punitive, and the company may take advantage of this situation to turn its fortunes around. A new chairman, for instance, will mean that Musk can concentrate on a smaller section of the company’s strategy. The new chairman can then set achievable goals for the company.

So as much as the company may have lost tens of millions of dollars courtesy of Musk’s tweets, SEC’s sanctions may ameliorate the obvious blunders that would have seen the company go under.