US court to hear contempt case against Tesla’s Musk

Elon Musk’s removal as Tesla CEO is not seen as a very likely result of the latest fight. (AFP)
Updated 04 April 2019
0

US court to hear contempt case against Tesla’s Musk

  • Elon Musk’s attorneys and the US Securities and Exchange Commission are scheduled to appear before US District Judge Alison Nathan
  • The agency took action after Musk tweeted on February 19 that Tesla would make 500,000 cars in 2019

NEW YORK: Elon Musk’s messy Twitter habit will get a once-over on Thursday when a federal court weighs whether the controversial Tesla chief executive should be held in contempt of court.
His attorneys and the US Securities and Exchange Commission are scheduled to appear before US District Judge Alison Nathan, who will hear arguments on the agency’s request to crack down on Musk for allegedly violating the terms of a settlement Nathan approved in October.
Musk’s removal as CEO is not seen as a very likely result of the latest fight, although a finding of contempt could make such an outcome more likely down the road, analysts said.
Tesla’s press office did not respond to queries on whether Musk would attend the hearing.
The October agreement required Musk to step down as chairman and pay $20 million to settle charges he defrauded investors with false claims on Twitter in August about a possible go-private transaction that was quickly aborted.
Tesla was also fined $20 million.
The settlement, which allowed Musk to remain as CEO, required the CEO and other senior officers to obtain pre-approval from Tesla counsel before making written communications “that contain, or reasonably could contain, information material to Tesla or its stockholders.”
The hearing is the latest event in Musk’s running battle with the SEC, which he derided on Twitter as the “Shortseller Enrichment Commission” on October 4, days after the SEC settlement was signed but before it was finalized in court.
Musk also blasted the agency in a December “60 Minutes” interview where he acknowledged his tweets were not being reviewed.
“I guess we might make some mistakes. Who knows?” Musk said. “Nobody’s perfect.”
“I want to be clear. I do not respect the SEC,” he said. “I do not respect them.”
The agency took action after Musk tweeted on February 19 that Tesla would make 500,000 cars in 2019 — up from the 400,000 that the company had estimated until then, an apparent increase on a benchmark tied to profitability.
Musk corrected himself four hours later, saying that Tesla would indeed produce about 400,000 cars this year: “Meant to say annualized production rate at end of 2019 probably around 500k.”
Six days later, the SEC asked Nathan to hold Musk in contempt for violating the settlement, arguing that Musk had not made “a diligent or good-faith effort” to honor the commitment to seek review for a statement that could be “material,” or consequential to investors.
Musk “once again published inaccurate and material information about Tesla to his over 24 million Twitter followers, including members of the press, and made this inaccurate information available to anyone with Internet access,” the agency said.
In response, Musk’s lawyers argued that the production figures were not material and that Musk had shown “diligence” in following the order, cutting his average monthly Tesla-related tweets “nearly in half.”
Musk’s attorneys also accused the SEC of an “unconstitutional power grab” that flouted Musk’s free speech rights and “smacks of retaliation and censorship” over the executive’s remarks on “60 Minutes.”
Erik Gordon, a professor at the Ross School of Business at the University of Michigan who has also taught at its law school, expects Musk’s arguments on freedom of speech to be discounted because they concern remarks that were governed by the settlement Musk and Tesla signed.
Gordon said the argument on whether the tweet was material may be taken more seriously, although Tesla production figures are closely watched by investors.
He said the court could impose a sanction short of the CEO’s removal but that a contempt finding could be used later to oust him if Musk continues to act out.
The “60 Minutes” interview feeds the image of Musk as a “guy who habitually displays contempt for authority” and undermines claims that he has been careful and diligent in trying to follow the settlement, Gordon said.
CFRA Research analyst Garrett Nelson said additional fines and social media restrictions were the most likely outcome of the current battle but that a possibility of more severe punishment had weighed on shares.
Analysts note Musk also owns a large stake in Tesla, which would likely make him a presence in the company even if he were barred as CEO.
“If he did get removed as CEO, he’d probably get some type of creative director job at Tesla because making or thinking of cool things is what he’s very good at,” said Morningstar analyst David Whiston.
“Then you have a tricky governance problem because the former CEO... is still there, probably telling people what to do, and he owns over 20 percent of the company,” Whiston added in an email.
“I wouldn’t want to be the new CEO in that situation.”


Slack primed as latest unicorn to make market debut

Updated 19 June 2019
0

Slack primed as latest unicorn to make market debut

  • Slack is a cloud-based software company that markets online tools for information sharing and workflow management
  • Current customers include Nordstrom, Ford and HSBC and the company has more than 95,000 paid customers overall

NEW YORK: The 2019 parade of big new Wall Street entrants continues this week with the debut of Slack Technologies, underscoring investor hunger for new companies in spite of some high-profile stumbles.
Nearly halfway through the year, US markets are on track for one of the biggest IPO seasons ever in terms of money raised following a stream of offerings from former “unicorns,” private companies worth more than $1 billion.
Yet two of this year’s biggest names — Uber and Lyft — currently trade below their IPO price, along with Snapchat, which has lagged its initial price for most of the time since it went public in March 2017.
Still, there have also been plenty of prominent companies that have risen since their initial public offerings, including jeans company Levi’s, Tradeweb Markets, which builds electronic marketplaces, Zoom Video Communications, and mobile application and software system Pinterest.
The most dramatic jump has been in food company Beyond Meat, which now trades at more than six-fold its entering price.
“The public has a huge interest” in new companies, said JJ Kinahan, chief market strategist at TD Ameritrade, adding that the mixed performance of the 2019 ex-unicorn class is comparable to that of the broader market.
“There aren’t a lot of other choices besides IPOs for investors seeking growth,” said Gregori Volokhine, president of Meeschaert Financial Services, who attributes the rush of funds in part to central bank policies promoting liquidity.
“There’s an excess of underinvested funds worldwide,” he said.
In terms of sheer volume, the number of IPOs in 2019 so far — 93 — is roughly equal to last year’s figure, according to Dealogic.
But the funds raised, $34.5 billion, stand 13.6 percent above last year’s sum and the highest for the comparable period since 2000, according to Dealogic data.

Direct listing
A cloud-based software company that markets online tools for information sharing and workflow management, San Francisco-based Slack parts ways from the other big companies this year by opting for a direct listing instead of an IPO.
This approach, which was also employed by Spotify last year, cuts down on fees to investment bankers in IPOs. Although existing shares can be sold, a direct listing does not issue new shares, averting share dilution but also forgoing the new funds raised in an IPO.
The process can also be riskier in terms of share price volatility compared with an IPO, where underwriters line up investors in advance. In a direct listing, shares are exposed more directly to the open market.
Slack chief executive and co-founder Stewart Butterfield described the company’s technologies as a “brand new category of software” that replaces email in a company.
Current customers include Nordstrom, Ford and HSBC and the company has more than 95,000 paid customers overall.
“It turns email to messages and organizes them into team, project and topic based channels instead of individual in-boxes,” Butterfield said in a June 10 earnings conference call.
“It’s a team-first approach to communication, in contrast to email’s individual first approach. It creates a rich, searchable, permanent body of information that’s widely available across an organization, even for people who just joined the team.”
 

Unprofitable three years
The company, which is expected to be valued at around $17 billion when it enters the market on Thursday, reported revenues of $134.8 million in the quarter ending April 30, up 66.7 percent from the year-ago period.
But Slack, which has been unprofitable the last three years, reported a $33.3 million loss during the period, 34 percent more than last year’s loss.
Of course, many unprofitable companies have gone public and done well in markets for years. Yet the heavy losses and murky profit outlook at Uber and Lyft have been seen as factors in their lackluster performance since going public.
But investors remain keen on growth stories following the success of Amazon, Facebook and other tech giants that have emerged in recent decades.
A key beneficiary of this desire has been Beyond Meat, which has multiplied in value many times since going public May 3 at $25 and currently is priced at $168.92. The company has been seen as a main beneficiary of the growing alternative protein market, which some analysts think could top $100 billion in the coming decade or so.
Kinahan said in general investors have wised up after the early 2000s Internet bubble but that “it’s just unnatural” for stocks like Beyond Meat to move in an unbroken straight line upwards.
“There’s a healthy bit of skepticism in the market,” he said. “However, certain companies have maybe gotten a little ahead of themselves.”