SEC nears distribution of $40M paid by Elon Musk, Tesla Inc
There has been some progress in the Court procedures related to the distribution of the $40 million penalty paid by Elon Musk and Tesla Inc as a part of a settlement with the Securities and Exchange Commission (SEC).
On Wednesday, May 12, 2021, the New York Southern District Court approved the appointment of a distribution agent to the $40 million fair fund in this case. This gets the SEC one step closer to the distribution of the money to harmed investors.
Let’s recall that, back in September 2018, the SEC announced that Elon Musk has agreed to settle the securities fraud charge brought by the SEC against him. The SEC also charged Tesla with failing to have required disclosure controls and procedures relating to Musk’s tweets, a charge that Tesla has agreed to settle.
According to the SEC’s complaint against him, Musk tweeted on August 7, 2018 that he could take Tesla private at $420 per share — a substantial premium to its trading price at the time — that funding for the transaction had been secured, and that the only remaining uncertainty was a shareholder vote.
The SEC’s complaint alleged that, in truth, Musk knew that the potential transaction was uncertain and subject to numerous contingencies. Musk had not discussed specific deal terms, including price, with any potential financing partners, and his statements about the possible transaction lacked an adequate basis in fact. According to the SEC’s complaint, Musk’s misleading tweets caused Tesla’s stock price to jump by over six percent on August 7, and led to significant market disruption.
According to the SEC’s complaint against Tesla, despite notifying the market in 2013 that it intended to use Musk’s Twitter account as a means of announcing material information about Tesla and encouraging investors to review Musk’s tweets, Tesla had no disclosure controls or procedures in place to determine whether Musk’s tweets contained information required to be disclosed in Tesla’s SEC filings. Nor did it have sufficient processes in place to that Musk’s tweets were accurate or complete.
Musk and Tesla have agreed to settle the charges against them without admitting or denying the SEC’s allegations. Among other relief, the settlements require that Musk and Tesla will each pay a separate $20 million penalty.
In February 2021, a Fair Fund was established for the $40 million paid by Musk and Tesla.
As per the order signed on May 12, 2021, and seen by FX News Group, Rust Consulting is appointed to serve as Distribution Agent for the Fair Fund to assist in overseeing the administration and the distribution of the Fair Fund in coordination with the Commission staff, pursuant to the distribution plan to be approved by this Court.
Rust will perform services in accordance with the pricing schedule and cost proposal submitted by the Distribution Agent to the Commission. Such services may include, but are not limited to, developing a Plan, determining the identities of injured investors and the amounts lost, establishing a claims process to evaluate and verify claims, fielding inquiries from investors and managing the ultimate distribution of the Fair Fund.