Sunday, September 30, 2018

Tesla Settlement Reeks Of Washington Corruption!

To Americans who accuse Washington of being a hotbed of cronyism and collusion, they need look no farther than the settlement between Elon Musk and the SEC which reeks of government corruption. So much for Trump draining the swamp! For all the turmoil and damage Musk has spread upon investors it seems rather than jail time or any meaningful punishment he will receive the equivalent of a slap on the wrist. Those that were skeptical that the US regulator would do anything have been proven more or less correct and as a bonus for Musk he has been allowed to neither admit nor deny guilt which means the settlement now makes any potential criminal case against Musk more complicated. Musk is set to make far more than the amount he was fined when the markets reopen and shorts are squeezed out of their positions with huge losses. This sends an absolutely horrible message to all investors looking for justice.

Musk Shows A Smile Upside-down?
Apparently protecting the exorbitant stock price of Tesla and those holding long positions took precedence over the law and justice. Steven Peikin, co-director of the SEC’s Enforcement Division, said in a statement. “The resolution is intended to prevent further market disruption and harm to Tesla’s shareholders.” According to the posted settlement filings on September 29, the SEC Musk will step down for 3 years as Chairman and pay a $20 million fine. Tesla will also pay a $20 million fine and the total $40 million in penalties will be distributed to harmed investors which will be overseen by a court-approved process.

In what constitutes a slap in the face for the average American who would be thrown in prison for committing such an egregious act of securities fraud Musk will also have to step down as Chairman of Tesla for a term of three years. He will, however, be able to remain at his post as CEO. Another part of the agreement relates to corporate reform and calls for the company to appoint a total of two new independent directors to its board and an almost laughable part of this agreement covers how in the future Musk would also have to get approval or clearance for all his future tweets that "contain information material to the Company" from its board.

Martha Stewart In Custody
Musk should be gleeful this will most likely postpone the demise of Tesla for a while. For the record, he was treated much better than Martha Stewart who was found guilty in lying about a stock sale back in 2004. This is a far cry from how Martha Stewart was imprisoned when a federal jury found her guilty of obstruction of a government investigation into her sale of ImClone Systems Inc. stock in late 2001. The stock trade at its center involved a relatively small amount of money. Stewart avoided a loss of about $51,000 by selling nearly 4,000 shares of ImClone stock on December 27, 2001, rather than the next trading day, when the stock tumbled after regulators rejected the company's application for a key cancer drug.

This was touted by the government as a "big win in its pursuit of white-collar crime." Martha Stewart who used her image of domestic perfection to build a multi-million-dollar company was sentenced to five months in prison plus an additional five months under house arrest and 19 months probation. She also received a fine and court fees, adding up to $30,000. At the time an industry analyst said Martha Stewart Living might not be able to survive as a going concern, but that Stewart having already sold at least $45 million of her company's shares would in all likelihood remain very wealthy. In doubt was whether Stewart, who resigned as CEO before the trial, would be able to run the company with a felony conviction on her record and how she would fare in civil lawsuits based on the conviction.

In short the SEC as a representative of our government, Washington politicians, and Wall Street have rushed out and put lipstick on this pig in an attempt to cover up the wrongdoing of another insider and their comrade in arms. Consider this proof that we live in a different time from those days when many former executives pleaded guilty or found themselves facing trial, from companies that have come to represent the excess of the 1990's stock market boom such as WorldCom, Adelphia, Tyco, HealthSouth, and Enron. Having cost ordinary investors billions of dollars with his manipulative, fraudulent tweet and played a game with their money seems to have little in the way of consequences for Elon Musk. It seems this is as close to getting away scot-free as Elon could ever hope or imagined if corruption was not the flavor of the day.

Footnote; A day after publishing this article I changed the title to better describe the point I'm trying to highlight. this is something I rarely do. The prior title was, Washington A Hotbed Of Cronyism And Collusion!

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