Report: TSLA Under Investigation By SEC Over Non-Disclosure of Fatal Autopilot Crash Ahead of Stock Offering

Nearly two weeks ago the news broke that a Tesla Model S, being driven in Autopilot mode, had crashed into the side of a Tractor trailer crossing car’s path as it autonomously drove along a two-lane highway in Florida. Neither the car’s driver — long-time Tesla fan Joshua Brown — or the car reacted to the truck crossing the road ahead, resulting in no deceleration before impact. Striking the trailer between the tractor unit and the rear wheels, the Model S ran straight under the truck, slicing off its roof and killing Brown.

But while the news of the accident only surfaced in the mainstream media at the end of June, the actual collision occurred on May 7, eleven days before Tesla Motors [NASDAQ:TSLA] and its CEO Elon Musk raised a combined total of more than $2 billion in a Secondary Stock Offering. Ahead of that offering, designed to help raise much-needed capital to accelerate Tesla Model 3 development as well as to “cover tax obligations associated with [Musk’s] concurrent exercise of more than 5.5 million stock options,” neither Musk nor Tesla revealed information about the fatal collision eleven days earlier, leading some in the media to claim that Musk and Tesla had profited from the failure to disclose material facts relating to the company.

Should Tesla have told investors about the fatal Autopilot crash?

Should Tesla have told investors about the fatal Autopilot crash?

Those claims, reported last week in earnest by several respected outlets, drew a swift and succinct response from Musk, who said on the record that the accident was “not material” to the company’s bottom line or its future. Engaging with some reporters on Twitter, Musk was clear that he believed disclosing the details of the crash ahead of the stock offering would have done little to the company stock price.

Yet yesterday, The Wall Street Journal reported after the close of trading on Wall Street that the U.S. Securities and Exchange Commission was investigating the California automaker for a possible securities-law breach in reference to the crash and Mr. Brown’s death.

The SEC is said to be investigating Tesla...

The SEC is said to be investigating Tesla…

Given that the SEC normally keeps news of its investigations a secret, The WSJ only cites an anonymous source familiar with the matter. Claiming that the investigation is at a very early stage and may not lead to any enforcement action, the newspaper says that its source says the investigation focuses on whether Tesla should have disclosed Mr. Brown’s death as a “material event”. Under normal situations, we’d suggest such a collision wouldn’t be important enough to be considered “material” to the company’s financial future. In fact, an automaker disclosing such an accident would be considered extremely unusual. But the Tesla Model S and its Autopilot feature aren’t mainstream yet. Autonomous driving is still in its infancy, and it could be argued that Tesla’s Autopilot functionality actually does give the electric automaker a competitive edge in the automotive marketplace.

Talking to The WSJ, Tesla said Monday that it had not received any communication from the SEC concerning the alleged investigation. In response to an enquiry from Transport Evolved today, a Tesla spokesperson told us that “Tesla has not received any communication from the SEC regarding this issue,” adding “our blog post last week provided the relevant information about this issue.” 

So why did Tesla inform the National Highway Traffic Safety Administration about the accident but not the SEC? Unlike informing NHTSA of a fatal collision, there’s no requirement for the SEC to be informed. And with Tesla claiming its own internal initial investigations into the crash not beginning until the day of the stock offering (it only sent an investigator to retrieve data from the crashed car on May 18 (the day of the sale), it seems to be suggesting it didn’t have enough information by May 18 to make a full representation of the accident on its SEC paperwork.

If successful, a court case could cause problems.

If successful, a court case could cause problems.

So far, most analysts seem to think Tesla has nothing to worry about either from the investigation or the crash. But, The WSJ reminds us, previous documents submitted to the SEC by Tesla outlined the fact that should Tesla be faced with a successful legal claim associated with its autopilot technology, Tesla’s bottom line would be affected.

In that case, any accident could be easily conceived as a material fact.

Sadly for Tesla, that might happen. Yesterday, Fortune reported that Brown’s family had hired a personal injury lawyer in the aftermath of the tragic accident that claimed his life.  While the lawyer in question — Jack Landskroner — said the firm hasn’t determined if Brown’s family have a case or will even file against Tesla, he did confirm that the legal firm is investigating into the circumstances of the crash.

Given the firm’s past successes, if it does decide to sue, things could get very difficult for Tesla indeed — although we should note that neither firm are discussing the case publicly at this time. Until that changes, we’ll have to wait for more information and as always, when we have it, we’ll let you know.


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