Tag Archives: SEC

SEC vs Elon Musk

Posted by Dan Mikrut.

Who knew that typing 280 characters could turn into a $40 Million dollar law suit. This is the cold reality in the case of the SEC vs. Elon Musk. On September 27, 2018 the SEC filed securities fraud charges against Elon Musk, the chairman and CEO of Tesla Motors. On August 7, 2018 Mr. Musk stated in a Twitter post “Am considering taking Tesla private at $420. Funding secured.” According to the SEC, his statement mislead the investing public that he could take the company back at a substantial premium during the current price of the company stock. The information was noted as misleading and false because they lacked any basis in fact. During the time of the tweet Musk had not received or secured funding for the proposed transaction. The stock price of Tesla ended up sky rocketing to $379.57 an increase in $37.58 a share within 24 hours of the tweet going public to Musk’s 22 million twitter followers.

Musk’s questionable actions lead to some serious consequences. The SEC and Musk had settled the case on September 29, 2018. Musk had to abide by 4 main points.

1. Musk must give up being Chairman for 3 years, but will retain a seat on Tesla’s board
2. Two new independent directors must be put on the Tesla Board
3. Musk & Tesla must pay $20 million each in fines
4. Musk must have a an oversight personnel on all his communications and social media accounts

On the personal note, I believe that the SEC went harsh on Musk and the whole ordeal is little obscured. While yes, I do believe Musk made a mistake and posted false information; he was quick to make sure it was known that his tweet was a joke for his wife referencing a 420 joke. This case is another perfect example of the American legal system taking advantage of American businesses and their profits over small legal incidents. I believe that the overpriced fine should’ve only been given to Musk and not the company, because Musk was the only person responsible for the tweet and not the company. As if the fine wasn’t bad enough, the SEC striped Musk of his position and responsibility in his own company that he helped cofound. While the oversight personnel on Musk’s accounts sounds like a good idea, it does also sound a little invasive and going against Musk’s freedom of speech. All in all, I don’t agree with the final verdict in this case because it was too aggressive over a small mistake that Elon Musk made, and shows how the justice system is a costly system that is failing America.

Dan is an IT management major in the Stillman School of Business, Seton Hall University, Class of 2021.

Works Cited:

CBS/AP. “5 Things to Know about the SEC’s Complaint against Elon Musk.” CBS News, CBS Interactive, 28 Sept. 2018, www.cbsnews.com/news/5-things-to-know-about-the-secs-complaint-against-elon-musk/.

Henning, Peter J. “What Are the Consequences of Elon Musk’s S.E.C. Criticism?” The New York Times, The New York Times, 12 Oct. 2018, www.nytimes.com/2018/10/12/business/dealbook/musk-tesla-twitter.html

Elon Musk and His Public Statements

Posted by Surya Makkar.

Over the past few years, Tesla has emerged as a frontrunner when it comes to electric vehicle technology. Their technology packed, self-driving, vehicles have come with their fair share of problems however. Not only has Tesla faced legal obstacles when it comes to their various technologies they use in their products, but more recently, Tesla CEO Elon Musk was sued by the Securities and Exchange Commission (SEC). Elon Musk was accused of committing fraud by publically making false statements, which could have impacted investors. To give some background, around a month ago, Elon Musk tweeted saying that he had “funding secured” to take Tesla private at $420. Something interesting to note is that the SEC did not sue Tesla as a whole, but rather only filed a suit against Elon Musk.

Elon Musk had never said anything before this to investors or shareholders about taking the company private, which is why everyone was caught off guard and was extremely shocked. After the suit was filed, Tesla shares fell more than 12 percent in after-hours trading. The SEC subpoenaed Tesla, financial institutions, and Tesla board members, to interview them and gather more information. The SEC found that Musk had been in a feud with investors who continued to say Tesla shares would fall.
A few days later, Musk and the SEC reached an agreement that required Elon to step down as Chairman of the board of Tesla and required him to pay a $20 million fine. According to the agreement, Musk does not have to admit any guilt and has 45 days to step down from the role of chairman. He will continue to serve as the CEO of Tesla however. This case goes to show how business professionals are being watched at every moment. One wrong move in the business world can lead to millions of dollars of legal action being taken against you, which is why it is imperative that people in the business world act as if they are being watched at all times.

Surya is a business law student at the Stillman School of Business, Seton Hall University, Class of 2021.

Sources:
https://www.nytimes.com/2018/09/27/business/elon-musk-sec-lawsuit-tesla.html

https://electrek.co/2018/09/29/elon-musk-settles-sec-lawsuit-resign-tesla-board-million-fine/

The Ethical Questions of Musk’s Statements

Posted by Aishwarya Rai.

Tesla, the Palo Alto-based automative and energy company, has been subject to much staggering lately, due to the conduct of its ex-Chairman and CEO, Elon Musk. Musk and Tesla have been subject to inquiries by the Department of Justice (DOJ) and Securities and Exchange Committee (SEC), as a result of Musk’s conduct; Musk tweeted about taking the company private, stating that funding had already been secured and shares would be priced at $420. Additionally, Musk made reference to those betting on shorting Tesla stocks by mentioning them and the “burn of the century.” Further details showed that Musk had no such funding secured, all whilst Tesla stocks zoomed upwards and short-sellers did in fact face losses.

This led to the DOJ and SEC to inquire into Tesla’s conduct as the tweets seemed to show that Musk misled the market to believe that Tesla would undergo privatization and thus gain some greater market value. When it was revealed that Tesla did not have the required amount of capital to go private, the SEC deemed that Musk’s actions were done to increase stock value and to financially harm short-sellers, making it an act of bad faith.

Furthermore, Musk’s actions showed a lack of ethical consideration as he seemed hostile towards short-sellers. Musk has a responsibility to shareholders as a CEO and the accuracy and truthfulness in the information he disseminates falls under this stipulation. Other acts that put his ethics in question were smoking on a podcast with Joe Rogan, which may go against Tesla’s codes of conduct as it can be said that he was acting as the CEO of the company while on camera.

These incidents put into perspective the need for important business officials to be mindful of the ripple effects of their actions on their fellow employees, clients, and shareholders. The effects of bad conduct, whether intentional or not, can be harmful and put companies at risk of failure. Accurate information is what creates a safe market, legally and financially.

Aishwarya is an economics and finance major at the Stillman School of Business, Seton Hall University,
Class of 2020.

Article:

https://www.cnbc.com/2018/09/27/tesla-falls-4percent-on-report-elon-musk-sued-by-sec.html

The 20 Million Dollar Tweet

Posted by Kyle Greene.

The SEC recently filed a lawsuit against former Chairman and current CEO of Tesla Elon Musk because of a tweet he sent out earlier this year. The tweet stated that he had plans to take the company private when the stock price reached 420 dollars. He also included that he had funding secured for this, and he may have at the time of the tweet, but obviously was not able to see the deal through. After the tweet, Tesla stock increased quickly by about 9 percent. The SEC claimed that Musk had published “False and Misleading” statements and therefore had violated insider trading and market manipulating laws. Some believe the motive behind the tweet was to punish short sellers of the stock, but Musk has adamantly denied any foul play.

The SEC wasted no time in their attempt to force Musk to settle, threatening him by saying they wanted to have “a judge bar Musk from serving as an officer or director of a public company.” After the SEC took this action, Musk and Tesla ended up settling for an amount of 20 million dollars each in fines. The SEC has forced Musk to step down from his chairman position on the Tesla board of directors; originally they wanted to remove him from CEO as well, but were only able to remove him from the board. I feel as though the SEC used this case as an example to other high level executives of what happens when inaccuracies are so carelessly thrown around. And in an interconnected world, everyone finds out about everything very quickly, so if you decide to publish a statement about the company it better be accurate because you cannot take it back.

This case was never about the wellbeing of Tesla shareholders; the objective was to make headlines and send a message. On the other hand, Musk has not always been a shining example of how to act in the business world, with his recent stunt on the Joe Rogan podcast. The Tesla board of directors has actually set up a committee to monitor Musk’s communications moving forward, which is a smart move by them. Regulators have an eye out for Tesla and Musk especially, being that he is in the public eye so often. Although it is obvious that Musk acted irrationally and illogically, the nature of his work and the innovative mindset behind his companies is one of controversy and pushing the envelope. This careless mistake was just a mishap along the way, and no matter how serious the SEC may want to treat it, “Why would the SEC want to harm the company more than the tweet itself?” Whitehead said. “That would be like throwing the baby out with the bathwater.”

Kyle is a business management major at the Stillman School of Business, Seton Hall University, Class of 2020.

Source:

https://money.cnn.com/2018/09/27/news/companies/elon-musk-sec-tesla/index.html?iid=EL

Elon Musk in Deeper Trouble

Posted by Paul H. Duffy.

Ever since Elon Musk tweeted on August 7th about the possibility of taking his company private he has been in deep trouble with the SEC. He made a series of tweets about the potential move saying funding was secured for $420 a share. After a few weeks, the SEC began to file a lawsuit against Musk after he backed out of the decision. The SEC claimed he misled investors and manipulated stocks. Initially Tesla and Musk were ready to fight the suit but a few days later things changed. “Elon Musk reached a settlement with the Securities and Exchange Commission that allows him to remain chief executive of Tesla Inc. but requires that he step aside from the chairman role for three years,” (Higgins and Michaels). The agreement also included a $20 million fine. Tesla also decided to make changes, “Tesla has agreed to appoint two new independent board members, establish a new committee of directors and create controls to oversee Mr. Musk’s communications, according to the SEC,” (Higgins and Michaels).

This isn’t the first time Tesla and Musk are in trouble with the SEC. Last year, the SEC began probing Tesla about misleading investors over the production of their newest model the Model 3. “As production started, he claimed about 1,600 cars would be made in the third quarter of 2017 before reaching 20,000 in December. Those forecasts were far below what he predicted roughly a year earlier, when he said as many 200,000 Model 3s would be made in the second half of 2017,” (Michaels, Glazer, and Higgins). While no official charges have been filed, the SEC has probed into Tesla’s manufacturing data. However, it will be difficult to prove Musk and Tesla intentionally tried to mislead investors. “Tesla already faces private litigation in a San Francisco federal court, where a group of investors alleged the company misled investors about how quickly it could ramp up Model 3 production,” (Michaels, Glazer, and Higgins). Tesla is fighting this saying they disclosed problems in a timely manner.

While Musk is a very famous and popular business owner, these problems seem to start adding up. Musk shows that tweeting business announcements on a personal account can create a grey area. Was his tweet an official business announcement or just a personal idea? Tesla is known as the company of the future and in the long run they will be stable and making profit. But with this increased production problems, Tesla could see their business really start going backwards. Time is of the essence especially as other established companies are moving into the electric car market. Time will tell if Tesla can right the ship.

Paul is business management major at the Stillman School of Business, Seton Hall University, Class of 2021. 

Sources:

https://www.wsj.com/articles/sec-pressing-tesla-directors-for-details-on-communications-with-elon-musk-1534450010

https://www.wsj.com/articles/elon-musk-can-remain-tesla-ceo-but-must-step-down-as-chairman-in-sec-settlement-1538257394

Bitcoin Regulation

Posted by Yacheng Xu.

 

Federal Reserve Bank of New York President William Dudley “warned that investing in privately issued digital money such as bitcoin could end in big financial losses for those involved.” He opined, “There is a bit of a, I would say, speculative mania around cryptocurrencies in terms of their valuations, which I view as pretty dangerous, because I don’t really see what the actual true underlying value of some of these cryptocurrencies actually is in practice.”

The Fed’s vice chairman for supervision, Randal Quarles, said, “While these digital currencies may not pose major concerns at their current levels of use, more serious financial-stability issues may result if they achieve wide-scale usage.”

From my perspective, with the gaining popularity of cryptocurrency like Bitcoin, more risks such as hacking and scandals will in crease.  Bitcoin proves to be a highly speculative asset. Nevertheless, the Fed failed to enforce any rules, and the SEC merely issued some warnings regarding Bitcoin and future ICOs. The cryptocurrency is basically free of government regulations, which easily can trigger an investment bubble, illegal fund-raising, and undermining the market economy. Hence, in China, the government has shut down the cryptocurrency exchanges in September, 2017 and prohibit new ICOs.

It is indisputable that the virtual money is a great way to avoid the control by a central bank. Given the pros and cons of cryptocurrency, we should have a compromise solution, allowing the existence of exchanges but setting regulations at the same time.

Yacheng is an accounting major at the Stillman School of Business, Seton Hall University, Class of 2019.

Sources:

https://www.wsj.com/articles/feds-dudley-says-puerto-rico-has-difficult-recovery-process-ahead-of-it-1519311605?mod=searchresults&page=1&pos=8

 

Crowdfunding Regulation: Too Much or Too Little?

 

Posted by Abigail Murphy.

 

A way to raise money, fund a project, or venture from a large number of people for a small startup in the earliest stage money sounds simple. Not so much. Every so often, there are crowdfunding campaigns gaining popularity via Facebook newsfeed, twitter feed, and emails. These campaigns come with issues of the right amount of regulation and increasing issue of inequality of funding portals.

After years of back and forth, in October 2015 the U.S. Securities and Exchange Commission (SEC) implemented Title III of the Jumpstart Our Business Startups (JOBS) Act. JOBS allowed startup companies to safely use the internet to offer securities to investors. Prior to 2012, the internet could not be used to match investors and startup ventures due to the “general solicitation rule.” In a short 6 years, the SEC has developed their stance that the internet as a matchmaker for investors and startups is solicitation to a lacking concern for the inequality of funding portals.

A funding portal is the basic platform for the fundraising to take place and act as an intermediary. Both the funding portal pursuant and the broker-dealer must be registered through the SEC, however rising inequality have expressed that regulation is not enough. Concerns are expressed due to argument of crowds vs. expert’s wisdom, including liability. Wisdom for a crowd verses one single investor is never going to be definitive, while a single expert’s wisdom could be too specific. In addition, some are urging the SEC to reevaluate the liability of both parties in a crowdfund due to the easy loophole of fraud. If experts are considered the investors of crowdfunding, do their duties violate under the 1940 Advisers Act? Is crowdfunding an indirect security? This act set grounds for investors to follow and a guideline for compensations, economic activity, and other indirect securities. If the experts end up being categorized as investors, then they too are responsible for any fraudulent financial activity.

Personally, I believe that the overturning of the 2012 JOBS solicitation rule and the 2015 implementation of Title III of JOBS is all still very new. There are no past comparisons of any type of money exchange and investment to base crowdfunding off of. As this topic gains popularity and a crowd does flock to crowdfunding, there will be a need for heavier regulations on the liabilities and registration to create an ethical and financially stable funding portal. I was surprised to read about such an open ended definition when it comes down to the investor vs expert responsibilities in relation to the Advisers Act in 1940. Crowdfunding is an innovative way and already has several fundraising success stories. Over the next few years it will be interesting to see the investor return reports. As long as the finances stay in line, and both the crowdfund pursuant and the investors stay happy I see no issue in allowing the internet to play a role in matchmaking.

Abigail is an economics major at the Stillman School of Business, Class of 2018.

Source:

http://scholarship.law.unc.edu/cgi/viewcontent.cgi?article=4958&context=nclr

 

 

Patchy Bitcoin Oversight Poses Hazards for Investors, Regulators Say

Posted by Shahrani Bhatti.

On January 30th of 2018, U.S. regulators made it known that they feel Congress should expand regulation of the bitcoin as well as a growing number of other cryptocurrencies. Their reasoning being that the currency is not subject to investor-protection laws. The chairmen of the SEC and the CFTC told senators that the exceedingly popular cryptocurrency has surmounted state regulation. This is only one of a growing number of concerns, as U.S. banks are taking a step forward and stopping credit card purchases of bitcoin in addition to bitcoin prices dropping dramatically as governments in China, India and South Korea have placed restrictions on cryptocurrency trading.

The chairmen continued, saying that in order to regulate cryptocurrencies and protect investors, Congress would need to become involved as the SEC and the CFTC hold no power in regards to the market of products like bitcoin. At a testimony earlier this year, Christopher Giancarlo of the CFTC said that if they were given jurisdiction in this situation that it would be a, “dramatic expansion of the CFTC’s regulatory mission.”

Both market regulators have also halted illicit operations that have attempted to capitalize investors’ growing desire for returns similar to that of bitcoin’s skyrocketing $17,900 in only December of last year. The SEC has also stopped initial coin offerings, a fundraising method that has accumulated billions from investors in exchange for the issuance of new digital currencies like the bitcoin, as the demand for them continues to grow. Chief of the SEC, Mr. Clayton said that unlike the bitcoin, however, that these other issuances leave the issuer vulnerable to federal anti-fraud and investor-protection laws. Because of unregulated exchanges, Chief Clayton says, market prices can intensely rise.

While the bitcoin is still mainly unregulated, its derivatives are continually inspected. The CTFC has examined how these tokens should be allotted for trading. Mr. Giancarlo has come up with a new process for other duplicate tokens of the bitcoin, which consist of intensified information sharing agreements between exchanges and the CFTC, and agreements by exchanges to coordinate launches with CFTC’s staff.

I believe cryptocurrency regulation is a necessity at this time. Investors need to be protected from fraud. If the U.S. begins to regulate these currencies, then other countries may also follow suit. The cryptocurrencies may also grow and lead to an increased number of jobs which can only benefit the U.S. economy. If this benefits the U.S. economy, a larger standard of living will persist and the U.S. will become a more powerful country — as a high standard of living among people, high GDP and a good economy are the defining features of powerful countries. Cryptocurrency may give the current U.S. national currency a run for its money, but in the long run, the benefits will outweigh the costs as cryptocurrencies are easier to manage and track as the exchanges are basically exclusively carried out online.

Shahrani Bhatti is an economics major at the Stillman School of Business, Seton Hall University, Class of 2020.

Orthofix International Charged With Accounting Failures and FCPA Violations

Posted by Alexander D. Bakogiannis.

Earlier this year the SEC reported that a medical device company named Orthofix was being charged with improperly booking revenue and making improper payment to doctors and government owned hospitals in Brazil.

They improperly recorded revenues as soon as a product was shipped before securing payments. When a company makes revenues from its operations, it must be recorded in their ledgers and then reported on the income statements every reporting period. According to GAAP, there are two criteria the company must meet before it can record revenues. First there must be a critical event that triggered the transaction process, and the amount collected from that transaction is measurable within a certain degree of reliability.  These wrongdoings cost the company over $14 M to settle charges.

One specific instance involved Orthofix recording revenue even when they gave their customers significant extensions of time to make payment. A company can recognize revenue from a transaction when the buyer of the company’s good or service agrees to a purchase, and the amount that the customer is going to pay is determined. By giving their consumers all this time to make their payments, the payments are fully determined, thus all the revenues should not have been recorded yet. These accounting failures make the company misstate data on their financial statement from 2011 to 2013. “Their accounting failures were so widespread that it caused them to make false statements to the general public regarding their financial condition”.

Orthofix violated the FCPA (Foreign Corrupt Practices Act) when their associates in Brazil used high discounts and made improper payments through third parties to solicit doctors employed by the government to use their products; fake invoices were used to facilitate this. All of this could have been avoided or contained if Orthofix had the proper internal controls in place and to ensure that proper payments were being made on their behalf to the correct individuals, and the right data was being recorded at the times times. Unfortunately, this was not the case. As a result, their sales were inflated.

Alex is an MBA with concentration in Accounting, and a Forensic Accounting Certificate, Class of 2017.

Reference:

https://www.sec.gov/news/pressrelease/2017-18.html

 

 

 

 

 

Forensic Accountant Witness: Disqualified

Posted by Diego Henao.

During vior dire, potential expert witnesses’ credibility and expertise is assessed to arrive at a decision if they are properly qualified to give their opinion in court. In the State of Utah, Judge Paul Parker has disqualified Gil Miller, a forensic accountant, from taking the stand as an expert witness for the prosecution team in the criminal trial against father and son, Wendell and Allen Jacobson, and their company Management Solutions Inc. This decision came about after the Jacobson’s attorney’s presented their argument that Gil Miller had a conflict of interest due to his previous professional involvement with the Jacobson’s and their legal team.

Miller participated in the defense of the Jacobson’s and their company in the December 2011 trial in which the SEC sued them for allegedly running a Ponzi scheme involving the purchasing and selling of apartment buildings. Miller’s role in this case consisted of being the accountant for the Jacobson’s attorneys, and because of this, he participated in the analysis of private information, and therefore, he should not be allowed to participate as an expert witness for the prosecution in the current trial. This was the argument that the Jacobson’s legal team brought to the attention of Judge Parker; they also mentioned how Miller was exposed to private documents, legal theories, and information and this should discredit his qualification, since he would now be on the opposing side helping the prosecution against the Jacobsons. The lawyer for Allen Jacobson, Amanda Mendenhall, argued that “ (Attorneys) must be able to rely on the confidentiality of the consultants they hire to assist in providing legal services to their clients. Without these protections it is scary to think an expert could be privy to critical defense strategy and then turn around and deliver the information to a prosecuting agency” (Harvey). The Jacobson’s attorneys also stated how during that SEC trial, Miller had provided their legal team with false information in regards to the work he had conducted.

Aside from wanting Miller to not participate in the case, the defense attorneys also argued that since Miller had already been in contact with the prosecutors, and therefore, had offered some sort of insight, he had “tainted” the case, and therefore, they demanded that the prosecution team be removed and replaced from this case. If Judge Parker would agree to this second demand, then the prosecution would be able to appeal this decision. The judge’s decision to disqualify Miller as an expert witness remained and concluded with the fact that he could not participate as an expert, but that he could still be a witness in regards to the facts of the case. This trial, which accuses the Jacobson’s of 16 felony fraud involved counts of failing to inform investors about how their investments were being managed is still yet to be scheduled.

Diego is a graduate accounting student at the Feliciano School of Business, Montclair State University, Class of 2018.

 

Works Cited:

Harvey, Tom. “Judge Says Prominent Forensic Accountant Can’t Be Expert Witness in Fraud Case Because of Conflict.” The Salt Lake Tribune. N.p., 19 Sept. 2017. Web.

http://www.sltrib.com/pb/news/business/2017/09/19/judge-says-prominent-forensic-accountant-cant-be-expert-witness-in-fraud-case-because-of-conflict