There is much more danger for Tesla (TSLA) CEO Elon Musk than the SEC complaint that was filed this week. At the SEC the press conference, the SEC officials declined to say what other charges, if any, might be brought.
What might the SEC have in store? We can look for guidance on page 5 of the complaint: This is the text on page 5 of the SEC complaint:
"Beginning in January 2017, Musk had three or four in-person meetings with representatives of a sovereign investment fund (the "Fund"). During these meetings, according to Musk, the lead representative of the Fund expressed a verbal desire to make a large investment in Tesla and establish a Tesla production facility in the Middle East."
Why is this so important? Because after -- after! -- those meetings had begun, Musk bought Tesla shares in the open market:
First, in May 2018.
Then, in June 2018.
This was right after Musk had taunted the short-sellers, insinuating that he knew something coming right around the corner that would bury them. What has become clear over the last two months, is that he was talking about the Saudis investing in the company. (Full disclosure: I'm currently shorting TSLA.)
Musk knew about the conversations with the Saudis. The investing public didn't. It certainly seems from the facts provided that Musk may have sought to profit from his privileged knowledge of the Saudi talks, by purchasing his own stock in advance of the Saudi investment news becoming public.
Well, if that turns out to be the interpretation of the DOJ, that's kind of a problem for Musk, isn't it?
If a CEO goes out of his way to buy stock in his company in the open market while said CEO had begun talking to a major strategic investor looking to either buy the whole company, or at least a part of it, what do we call that? I don't need to spell that out, do I?
Yes, if The U.S. Department of Justice were to file that kind of a charge, it would be a far bigger problem than the SEC filing the kind of securities fraud charges that it filed this week. After all, the SEC is not asking, as a matter of relief, for jail time in this week's complaint.
However, if the DOJ -- perhaps in cooperation with the SEC -- were to file additional charges where they view Elon Musk's May and June 2018 stock purchases in a very negative light, that could be a far bigger problem for Musk. At a minimum, the DOJ could ask for tougher penalties than in this week's SEC complaint.
