Tesla under pressure after DOJ inquiry, criminal probe report: Lawyer

Tesla CEO Elon Musk.Aaron P. Bernstein/Reuters

• In the wake of a reported investigation from the Securities and Exchange Commission (SEC), Tesla said on Tuesday that it had received and cooperated with a voluntary request for documents from the Department of Justice (DOJ) but had not received a subpoena.
• According to Jay Dubow, a partner at the law firm Pepper Hamilton who previously worked as a branch chief in the Division of Enforcement of the SEC, it’s too early to tell where the DOJ’s inquiry may lead.
• The agency’s request for documents from Tesla doesn’t necessarily mean the SEC is moving closer to an enforcement action against the company, he said, but “it raises the temperature” on Tesla.

In the wake of a reported investigation from the Securities and Exchange Commission (SEC), Tesla said on Tuesday that it had received and cooperated with a voluntary request for documents from the Department of Justice (DOJ) but had not received a subpoena.

The automaker’s statement followed a report from Bloomberg, citing two people familiar with the matter, that the company is facing a criminal investigation by the US Attorney’s Office for the Northern District of California into public comments the company and its CEO, Elon Musk, made about taking the company private. (The DOJ did not immediately respond to a request for comment.) The SEC is also reportedly investigating those comments. 

While Musk said via Twitter on August 7 that he had “funding secured” for a deal to convert Tesla into a private company, subsequent news reports and statements from Musk suggested that he might not have had legally binding agreements in place to finance a go-private deal at the time he published the tweet.

According to Jay Dubow, a partner at the law firm Pepper Hamilton who previously worked as a branch chief in the Division of Enforcement of the SEC, it’s too early to tell where the DOJ’s inquiry may lead. The agency’s request for documents from Tesla doesn’t necessarily mean the SEC is moving closer to an enforcement action against the company, he said, but “it raises the temperature” on Tesla.

While the SEC can levy fines on companies and bar executives from serving as officers of public companies, the DOJ can issue more serious punishments, such as prison sentences. That being said, neither Tesla’s statement nor Bloomberg’s report suggests that either agency is approaching some sort of enforcement action, according to Dubow.

From here, the agencies will likely coordinate to some degree but pursue separate investigations, Dubow said. If the DOJ decides it needs certain kinds of information from Tesla, such as bank or phone records, it will call for a grand jury and issue subpoenas.

Below is the full statement Tesla gave Business Insider about the DOJ’s inquiry.

“Last month, following Elon’s announcement that he was considering taking the company private, Tesla received a voluntary request for documents from the DOJ and has been cooperative in responding to it. We have not received a subpoena, a request for testimony, or any other formal process. We respect the DOJ’s desire to get information about this and believe that the matter should be quickly resolved as they review the information they have received.”

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