Activist Investors Ask SEC to Investigate Tesla Plans to Cut Fees

Elon Musk, who can be seen here at an event in New York in early May, is actively seeking to build the capacity to build his electric vehicles from start to finish in resource-rich Indonesia.

Taylor Hill | Getty Images Entertainment | Getty Images

Active investors SOC Investment Group asked federal financial regulators to investigate Tesla over plans to reduce the size of the board of directors from eight to seven members and close one independent director seat.

Tesla announced in its June provisional proxy statement that Oracle founder Larry Ellison does not plan to run for re-election at this year’s AGM, and the company does not plan to nominate anyone new to take his place. A group of investors called on the Securities and Exchange Commission to reject the application, according to a letter to the agency shared with CNBC.

SOC, formerly known as CtW Investment Group, alleges that Tesla’s plan and Elon Musk’s continued use of social media to release material business information without the prior approval of a securities lawyer violates the terms of the settlement agreement that Tesla and Musk entered into with the SEC in 2018.

SOC research director Rich Clayton told CNBC this week that his group has long been concerned about Tesla’s “lack of independence on the board.” He referred to Tesla’s 2016 acquisition of SolarCity, a company founded by Musk’s cousins, funded by Musk and on the board of directors.

“The board of directors has repeatedly made decisions not in the long-term interests of Tesla, but based on the personal interests of Elon Musk,” Clayton told CNBC.

“We believe that other long-term shareholders should be concerned about the proposed changes in the composition of the board of directors,” he said. “The Tesla board was unwilling to respond to shareholders by doing what they said they wanted. They can shy away from what shareholders propose and vote for.”


Independence of the Council

In a letter to the SEC this month, the SOC wrote:

“Multiple evidence, including statements by CEO Elon Musk, indicates that, contrary to the consent decree requirements, Tesla’s board of directors did not exercise effective oversight and did not establish a credible prior authorization process that Mr. Musk must follow in a potential significant public statements regarding Tesla.”

The group added: “As a result of these failures to comply with the general consent ruling, Tesla shareholders have experienced spikes in the value of their shares, largely due to the type of impromptu statements by Mr. Musk that caused the SEC to take action against Mr. Musk and Tesla initially. “.

The Securities and Exchange Commission has already launched numerous investigations into Elon Musk and Tesla regarding possible insider trading. information disclosure about his share of Twitter and his compliance with the settlement agreement, according to correspondence between the agency and Tesla and court documents.

Musk also accused the SEC of crushing his free speech rights through the settlement and their investigative activities and filed an appeal to withdraw from at least some of the terms of the settlement agreement.

Tesla and Musk are represented by Alex Spiro in the SEC case. They did not respond to a request for comment when CNBC submitted the activist investor letter.

SOC Investment Group works with union-sponsored pension funds that manage about $250 billion in assets. The Group generally provides shareholders with decisions relating to corporate governance and social responsibility. They will notify regulators, other shareholders and pension fund managers when companies in their portfolios are behaving irresponsibly and could have a negative impact on a company’s long-term financial health.

The same group helped get McDonald’s shareholders to vote for an independent civil rights assessment of the fast food titan, for example, after McDonald’s had attracted several discrimination and harassment lawsuits in previous years.

While Tesla is facing multiple lawsuits over alleged racist discrimination against black employees, the SOC investment group is not proposing Tesla to conduct a racial justice audit at this time.

Clayton explains, “The lack of independence that we’re seeing on the Tesla board of directors tells us clearly that it will be difficult to get this board to do the right thing in terms of resolving any number of serious internal issues, cases, and allegations.”

Read the letter here.