By Investors in Tesla (TSLA) may need to pay closer attention to recent developments regarding CEO Elon Musk. According to a report by The Wall Street Journal, the Justice Department is conducting a criminal investigation into whether Tesla adequately disclosed certain benefits that Musk may have received from the company. While this issue has not yet affected the stock, it is still a matter of concern.
At this point, it appears that one of the concerns revolves around a house allegedly provided to Musk. The Journal previously revealed that prosecutors were looking into a secret project referred to internally as a house for the CEO. However, Musk has denied the construction or existence of such a house through social media channels.
Companies are required to disclose executive compensation and transactions with related parties exceeding $120,000. Tesla’s filings with the Securities and Exchange Commission include disclosures on transactions between the company, Musk, and his other businesses such as X (previously known as Twitter) and SpaceX.
Although it is too early to predict the outcome of the investigation, any legal troubles faced by Musk could have repercussions for Tesla investors. As the CEO and driving force behind the company, distractions of this nature can have a negative impact. One need only look at what occurred to Tesla’s stock during Musk’s early days of owning Twitter to understand the potential consequences.
When Musk took over ownership of Twitter in late October, Tesla’s stock was trading at around $225 per share. However, by the end of 2022, it had plummeted to approximately $123 per share—a decline of 45%. In comparison, the Nasdaq Composite dropped only 3% during the same period.
Tesla Share Price Bounces Back
It is worth noting that both Tesla and Elon Musk were required to pay $20 million each to the Securities and Exchange Commission (SEC). This followed Musk’s tweet in 2018 stating that he had secured funding to privatize Tesla at a price significantly higher than the stock’s prevailing value at the time. The SEC accused Musk of securities fraud and criticized Tesla for inadequate measures to handle his tweets. However, the financial penalties imposed on both parties were relatively insignificant.
Musk’s primary form of compensation is through stock options. In 2018, he was awarded approximately 300 million shares, priced at around $23 per share, subject to specific performance targets.
According to regulatory filings, Musk has not received any additional compensation in 2020, 2021, or 2022. The 2018 options award alone amounts to approximately $70 billion at the current stock price.
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