Investors are going to have to pay a little closer attention to perks that may have flowed from
Tesla
to CEO Elon Musk. It’s a headache, but the issue isn’t moving the stock at this point.
The Wall Street Journal reported Tuesday that the Justice Department was conducting a criminal investigation looking at whether Tesla properly disclosed benefits that may have been paid to Musk by the company (ticker: TSLA), among other issues.
The Justice Department and Tesla didn’t immediately respond to requests for comment.
Some of the concerns appear to be related to a house for Musk. The Journal reported last month that prosecutors were looking at the company’s use of resources on a secret project it said was described internally as a house for the CEO. Musk has said on social media that no house was built, and that one isn’t planned or under construction.
Companies have to disclose the compensation of key executives as well as transactions with related parties in excess of $120,000. Tesla’s filings with the Securities and Exchange Commission do include disclosures and amounts related to transactions between Tesla, Musk, and some of his other companies including X, formerly known as Twitter, and SpaceX.
Although it is too early to tell how the investigation will turn out, problems for Musk can be trouble for Tesla investors, given his role as CEO and the visionary behind the company. Investors only need to look at what happened to Tesla stock during Musk’s early days owning Twitter to see what distractions can do.
Tesla stock was about $225 a share when Musk took over Twitter in late October. It closed 2022 at about $123 a share, down 45%. The
Nasdaq Composite
dropped about 3% over the same span.
The share price has more than made up the lost ground, trading at $266.50 on Tuesday afternoon. Shares rose 0.5% Tuesday, while the
S&P 500
and Nasdaq Composite both fell about 0.2%, appearing to shrug off the impact of the Journal article, which was published about an hour and a half before the close of trading.
The lack of reaction doesn’t mean investors can ignore the report. It just means that, for now, the potential perks are a watch item, rather than a serious concern, for investors.
Tesla and Musk each paid $20 million to the Securities and Exchange Commission after the CEO tweeted in 2018 that he had “funding secured” to take the company private at a price significantly above the stock’s level at the time, without having discussed terms of the deal such as price with potential financing partners, according to the SEC. The agency charged the CEO with securities fraud and charged Tesla with failing to have procedures in place to handle Musk’s tweets, but the penalties weren’t significant amounts for either one.
Musk’s primary compensation comes in the form of stock options. A 2018 options award essentially gave Musk about 300 million shares at roughly $23 each if certain performance milestones were hit.
Musk hasn’t received any additional compensation in 2020, 2021, or 2022 according to regulatory filings. The 2018 options award is worth some $70 billion at Tesla stock’s current price.
Write to Al Root at [email protected]
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