A lawsuit filed by the Securities and Exchange Commission (SEC) on Thursday said Elon misled investors with a series of tweets on Aug. 7th in which he said he was considering taking Tesla private and had secured funding. Musk's statements and related conduct add up to a series of violations of Rule 10b-5. Rule 10b-5 is a regulation that was created under the Securities Exchange Act of 1934. It prohibits the "employment of manipulative and deceptive devices" in connection with the purchase or sale of any security.
I have been following Tesla for the past several years and to me it was apparent, why Elon put out that tweet on Aug 7th. Elon's mission for Tesla is to accelerate the world's transition to sustainable, clean energy. However, he felt the short sellers were getting in the way of that mission and this year he has been very vocal about it. In an email some months ago Elon wrote, “As the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company." Another jab at the short sellers was this tweet he put out on May 4th.
Elon's battle with short sellers has become personal in 2018. Hence, his tweet on Aug. 8th was an attempt to short squeeze the short sellers. Mission accomplished, short sellers lost over $1 billion that day.
Short sellers were down $1.5 billion in mark-to-market losses Tuesday, bringing August losses to $3 billion, year-to-date losses to $3.2 billion, and losses since 2016 to $6.6 billion, according to the financial technology and analytics firm.
However, Elon's infamous Aug 8th tweet went to far. Thus, the SEC lawsuit seeks to bar Mr. Musk, who is also Tesla’s chairman, from serving as an executive or director of publicly traded companies like Tesla. Such a punishment is one of the more serious penalties the S.E.C. can impose against a corporate executive. But the lawsuit would allow Musk to remain as CEO of Tesla and he or the company would not have to admit any wrong doing. Lastly, the lawsuit also included a fine and two new independent directors would have to be appointed.
In typical Elon fashion he released the following statement: "This unjustified action by the SEC leaves me deeply saddened and disappointed. I have always taken action in the best interests of truth, transparency and investors. Integrity is the most important value in my life and the facts will show I never compromised this in any way." However, this weekend, he came to his senses or was influenced to come to his senses.
The Securities and Exchange Commission reached a settlement of fraud charges on Saturday with Tesla Inc. and Elon Musk that forces Musk’s removal as chairman of the Tesla board and the payment of $40 million in penalties.
So now what, what happens to the stock price on Monday, but more importantly moving forward, lets go to the charts to get some clues?
Price has been within a $130 range since March of 2017. However, price is now back at the lower range which also represents monthly demand at $250. Price was last at the $250 level in April before eventually moving higher to $378.
From a fundamental standpoint, with the SEC charges now behind Tesla, there is now more certainty, which is bullish for the inventors. In addition, from a technical standpoint, price was able to close just right above the upward trendline on the monthly chart.
So my personal bias is that on Monday, price moves higher. However, the line in the sand is $250. If we start getting closes below $250, the chart suggests price will go down to $180.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
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