A Judge Wants Musk, SEC To Justify Fraud Settlement

Tesla, Inc TSLA stock dropped 5 percent Thursday. Along with the broader market sell-off, concerns over CEO Elon Musk’s fraud settlement with the U.S. Securities and Exchange Commission resurfaced once again.

What Happened

On Thursday, U.S. District Judge Alison Nathan requested more information from the SEC and Tesla related to the settlement so that she can determine whether or not it's “fair and reasonable, with the additional requirement that the public interest not be disserved.” The charges stem from an August tweet in which Musk claimed he had “funding secured” to take Tesla private at a price of $420 per share. It was later revealed that Musk had no formal offer in place.

The judge gave Tesla and the SEC one week to submit a joint letter explaining the settlement in further detail.

Why It’s Important

Tesla's stock tanked last week when the SEC filed the initial fraud charges against Musk and Tesla. The uncertainty surrounding the outcome of the charges, Musk’s future with the company and the prospect of a prolonged period of negative headlines drive Tesla’s stock near its 52-week lows.

However, Musk and the SEC settled the charges over the weekend, with Musk and Tesla agreeing to pay $20 million in fines each and Musk stepping down as Tesla’s chairman for at least three years. Tesla stock skyrocketed 16 percent Monday as investors and analysts believed the settlement was a best-case scenario for Tesla. The judge’s request for additional evidence suggests Tesla may not be out of the woods just yet.

What’s Next?

Tesla investors will be watching and hoping that the additional information provided in the letter will be enough for the judge to approve the settlement. Investors will also be watching Tesla’s Q3 earnings report closely after Musk repeatedly promised Tesla would be profitable and cash-flow positive for the first time in Q3.

Shares traded around $281.10 at time of publication. Following Thursday’s sell-off, Tesla stock is now down 19.8 percent overall in the past year.

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