How To Solve A Problem Like Elon?

  • Date: 15/08/18
  • Holman W. Jenkins, Jr., The Wall Street Journal

If the SEC gives Mr. Musk a pass and down the road lies some greater calamity, how does the agency explain administering a mere slap for what might appear in retrospect to have been a harbinger of major malfeasance?

So, like the nuns of Nonnberg Abbey, if you’re the Securities and Exchange Commission, what are you going to do?

Elon Musk is extraordinarily popular with the public, with shareholders, with politicians. His company is worth $60 billion in the marketplace. It embodies the hopes and dreams of many green believers and others. Especially in blue California and purplish Nevada, politicians have poured millions and even billions into it. And Mr. Musk himself is crucially if intangibly important to all this: Tesla’s stock valuation and the faith of Tesla’s believers depend on him personally to a large if immeasurable degree.

The SEC could throw the book at Mr. Musk as it did Bernie Ebbers of WorldCom or Ken Lay of Enron. Even less ambiguously than these men, who were able to shift some of their blame to expert accountants and financial officers, the agency could conclude Mr. Musk intended to mislead the market by putting out inaccurate information that he knew would have a positive effect on the stock price.

It was information, after all, that explicitly told the world an offer for Tesla shares, then selling for $350, would soon materialize with their hero’s own imprimatur for $420 a share.

Mr. Musk used Twitter in the past to threaten short sellers with just such a comeuppance. He may have issued his buyout tweet impetuously, as he reportedly now tells his board, but that’s hardly a defense. Impetuously or not, he would have known the effect on the market. “I forgot” was the advice Steve Martin gave for explaining to the IRS why you failed to pay your taxes. “I’m sorry” will presumably not fly any better in Mr. Musk’s dealings with the SEC.

The agency could seek Mr. Musk’s removal from Tesla. It could seek to ban him from serving as an officer of a public company. But Tesla isn’t bankrupt.

The SEC seldom is keen to cause trouble by noticing wrongdoing before the market has made up its own mind about a company’s dereliction; it much prefers to show up after the fact and shoot the wounded.

Given the importance of Mr. Musk’s role, acting with severity now might put the whole Tesla enterprise in jeopardy. Its stock price might collapse. Injured not only would be shareholders but car owners counting on the company for continued service and support. Injured too would be taxpayers who put big money into the company to create jobs and bask in green virtue.

The SEC would be the villain. As the song says, it would be accused of crushing the moonbeam in its hand and worse: There would be insinuations the agency acted to punish one of Donald Trump’s antagonists, even if no evidence existed, because that’s a go-to in this age of Trumpian resistance.

But this raises another headache. If the SEC gives Mr. Musk a pass and down the road lies some greater calamity, how does the agency explain administering a mere slap for what might appear in retrospect to have been a harbinger of major malfeasance?

After all, Tesla has yet to show that manufacturing electric cars can be profitable.

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