'Tis the season to determine who's been naughty or nice. I'll give you the facts, then you decide.
This holiday story is about an SEC investigation that ended in May 2017. It was wrapped in plain, brown paper and just found under our tree, opened by Probes Reporter ("Independent Investment Research Focused on Public Company Interaction with the SEC") and Dealbreaker.
The three major players in this holiday tale are Tesla Inc. (Nasdaq: TSLA), Goldman Sachs Group Inc. (NYSE: GS), and the SEC itself.
What makes this a holiday story is that it's about gifting. Who gifted what to whom, how much, and, most importantly, why.
You decide who's naughty: Goldman Sachs, Tesla, the SEC, or all of the above?
Here are the unwrapped details...
What Tesla Knew vs. What Tesla Did
The story starts back on May 7, 2016. That's when a Tesla Model S electric car in partial, self-driving autopilot mode plowed into the side of a truck on a divided highway in Florida, killing the driver of the Tesla.
Tesla brass found out about the crash that day but didn't alert regulators until May 16, nine days later.
"Tesla then provided NHTSA with additional details about the accident over the following weeks as it worked to complete its [Tesla's] investigation, which it ultimately concluded during the last week of May," a spokeswoman for Tesla said.
Fortunately for Tesla, The U.S. National Highway Traffic Safety Administration, which doesn't comment on its own investigations, waited until June 2016 to formally announce it was investigating.
It took until January 2017, but the NHTSA "found that the owner of a Tesla Motors Inc. Model S sedan that drove itself into the side of a truck in May had ignored the manufacturer's warnings to maintain control even while using the driver-assist function."
The agency said it found no defect in the vehicle and wouldn't issue a recall.
"We appreciate the thoroughness of NHTSA's report and its conclusion," Tesla said in an e-mailed statement.
But I'm getting ahead of myself.
Two days after the fatal crash was revealed to the NHTSA, on May 18, 2016, without disclosing the fatal crash to the public, Tesla sold $2 billion worth of its stock to investors. Goldman Sachs and Morgan Stanley were the underwriters.
About $1.4 billion worth of stock was sold by Tesla in the secondary offering, to help fund expansion of facilities to manufacture the company's Model 3 vehicle. And the rest, some $600 million worth of stock, was sold by Elon Musk, Tesla's founder and CEO, to pay taxes on his acquisition of 5.5 million more Tesla shares from exercising company options.
Coincidently, on the same day Goldman Sachs was gearing up to sell Tesla stock, May 18, 2017, now 11 days after the crash and two days after Tesla reported the fatal crash to regulators, a top-ranked Goldman analyst upgraded Tesla' stock.
On the morning of the stock offering, in its May 18 note to clients, Goldman estimated Tesla only needed to raise $1 billion to fund accelerated Model 3 production. The analyst also said Goldman "sees a 22 percent upside to its six-month price target."
This was, without a doubt, interesting. But the real question lies in whether or not it was legal.
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Timing Is Everything
When facts came out about Tesla not disclosing the fatal crash, which analysts, lawyers, and Tesla skeptics claim was a "material" fact that would have affected the offering, and it was revealed that Goldman Sachs had upgraded the stock on the same day it was underwriting a $2 billion secondary, the SEC had to launch an investigation.
Peter Henning, a law professor at Wayne State University in Detroit, said Tesla probably should have informed investors of the crash before its stock offering and before its subsequent SolarCity offer. "The materiality issue is not about the death itself, but more about the circumstances of the crash and calling into question a technology that's important to Tesla's future, those are issues that investors want to know, so you could make a reasonable argument that it crossed the (materiality) line. When it's that close, the (U.S.) Securities and Exchange Commission expects disclosure," Henning said.
So, the SEC investigated.
You'll be happy to know, as was Tesla and Goldman Sachs, the SEC investigation that began in June 2016 ended on May 31, 2017, with no enforcement action recommended.
Maybe the SEC investigation took so long because it takes time for the commission to let some of its favored charges push back. Maybe it took so long because it takes time to see changes at the SEC itself.
Those changes to the SEC came on May 4, 2017. That's when the 32nd Chairman of the Securities and Exchange Commission, Walter "Jay" Clayton, nominated by President Donald Trump, assumed office. Within that month, the Tesla and Goldman investigation was closed.
Of course, there's no further coincidence in the fact that Jay Clayton, the former co-managing partner of the General Practices Group at powerhouse law firm Sullivan & Cromwell, personally represented Goldman Sachs on many deals... Deals including Goldman getting a $5 billion investment from Warren Buffett at the height of the 2008 financial crisis and Goldman raising $5 billion in a stock offering to pay back half of the $10 billion it borrowed from the Treasury to say alive.
And, of course, there's still no further coincidence in the fact that Jay Clayton's wife, Gretchen, worked for Goldman Sachs for 10 years before resigning upon her husband's assumption of public office, lest the SEC chairman should have to recuse himself from any matter pertaining to Goldman.
I'll say it again: Timing is everything.
Since May 2017, Goldman Sachs' stock is up at all-time highs, Tesla's stock is near all-time highs, and the SEC's just high all the time. So, it's been nice for them.
Are any of them naughty?
You decide. Let me know in the comments below what you think.
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The post Naughty or Nice? The SEC, Tesla, and Goldman Sachs Story appeared first on Wall Street Insights & Indictments.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.