Last week, the Securities and Exchange Commission offered Elon Musk a settlement deal to make the troubles from his "funding secured" tweet go away, and his lawyers said he was going to take it. Then he decided he'd rather not, and the SEC came back over the top with a lawsuit that could have permanently benched him from running the company.
In this segment from the MarketFoolery podcast, host Chris Hill and senior analysts Taylor Muckerman and Jason Moser reflect on the not-terribly surprising news that this weekend, Musk backed down. But the deal he spurned last week was a little better than the one he wound up with. However, the Fools actually see an upside to one aspect of the whole affair.
A full transcript follows the video.
This video was recorded on Oct. 1, 2018.
Chris Hill: Let's move on to Tesla (NASDAQ:TSLA). I think it's important to set the context. The context is that last week, reportedly, there was a deal in place between the SEC and Tesla. Reportedly, Tesla's lawyers had told the SEC, "Elon Musk is going to sign this deal." And he got a good night's sleep and woke up and said, "I'm not signing this thing." And that led to the SEC suing them for fraud.
The deal was reportedly a fine for Elon Musk, a fine for Tesla, a requirement that Tesla add two new independent directors to the board, and a two-year bank on Elon Musk serving as chairman of the board. That's the deal he rejected.
Over the weekend, apparently, he saw the light, because he accepted a deal that basically had those same terms, except for the fact that the two-year ban is now a three-year ban on him serving as chairman of the board.
Jason Moser: I just like to think that Elon Musk is a Motley Fool Money listener. I think we called this on this week's episode, right, Chris?
Hill: It was the lead story.
Moser: We realized his knee jerk reaction, and we thought, "Listen, he has more to lose, he'll come back around and go ahead and settle this." There were too many reasons to not do that. He had too much to lose to sit there and try to stretch this thing out, particularly when you consider where Tesla is today.
For me, it's interesting to see how many people are having fun framing Musk losing the chairman's role as bad. As investors, we actually love to see that. I do! I love to see that separation of powers.
I mean, if anything, it perhaps gives someone to counter Musk's somewhat impetuous nature. That is, unless they install a puppet. But I don't think that's something that would necessarily happen. I think ultimately, this is a good thing in.
If anything else, this just goes to show you that, as an individual investor like we are, there are forces at play that we cannot anticipate and really can't have any effect on. The market closed Friday, the world was coming to an end. Pre-market today, all is right with the world. There's nothing that we can do to try to be a part of that. That's why we take that business-focused approach of just saying, "Hey, we're going to try to find good businesses that are changing the world with good leaders, and we'll go and hitch our wagon to their stars, and just take the long-term approach there." These are the types of things that we have no control over, can't compete on that field.
Taylor Muckerman: Seems like a slap on the wrist to me, even though he is out the chairmanship rile. I appreciate it as a shareholder. I think they originally wanted to ban him from being a director or an officer of any publicly traded company.
Hill: That was the lawsuit. It was basically, "Here's this deal. Go ahead and take this deal and you can put this behind you." And he said, "No." And they said, "OK! Now we're going to sue you for fraud. By the way, here's one of the penalties." If they had proven him guilty of fraud, that was one of the things that they were facing. I'm sure there were people, whether they were other executives or lawyers at Tesla, or large shareholders, who pulled him aside and said, "Hey, you think things are distracting, right now? Imagine this lawsuit and spending the next couple of years on this. And, oh, by the way, if you lose, this is what you're looking at."
Muckerman: Yeah, I think he brought on Mark Cuban's lawyer from his insider trading case. So maybe he had some influence there to be like, "I've been through this before. You might not want to test them."
Moser: Tesla is not 16% better today. It's not like all is now fixed. It still has very much the same challenges as it had on Thursday and Friday of last week. This just clearly erases some uncertainty. And that was some big uncertainty, if he decided to go through that sue.
Muckerman: And he's still tweeting out Naughty by Nature music videos at 04:00 AM on Monday morning, the day after all this breaks, and sending emails to all employees on Sunday to encourage them to close out September with a bang.
Hill: I want to go back to something you touched on, Jason. I also find this interesting, that there are some people out there who are painting this as a big loss for Elon Musk. Sure, he has to write a $20 million check, and Tesla has to do the same thing. But, let's say instead, he just came out this morning and said, "I'm stepping down as chairman of the board. I'm announcing that we're going to be hiring two new independent directors. And, oh, by the way, I realized that I've been tweeting a little bit too much, and now my tweets are going to be reviewed by people before they go out." We would all applaud that! I'm not a shareholder, I would stand up and applaud that!
Moser: It's the difference of someone volunteering to do something vs. being told to do it, right? I think there are a lot of people out there that, whether they're just Tesla bears or they just don't like the way Musk runs his company and communicates, they're glad to see he got his ass handed to him for a round. But, again, you have to love what this guy's trying to do beyond just cars. Not many people out there that can do what he's doing. So, I don't know, I'm not an investor in Tesla, but I certainly do support what he's doing.