Former SEC Chairperson Pitt Discusses Tesla (TSLA) on CNBC
NEW YORK (TheStreet) --The SEC has opened up an investigation into Tesla (TSLA) - Get Report for possibly breaking a securities law when the company failed to disclose an accident involving a car using autopilot, which killed a 40-year old man, the Dow Jones reports.
Former chairperson of the SEC Harvey Pitt joined CNBC'S "Halftime Money Report" on Tuesday, to weigh in on the reported investigation and relay his own thoughts on if an investigation is warranted.
"It would appear that it should have. For one, this was a registered offered of securities and there are very special rules which apply to that, which require that companies selling securities through a registration statement, must include in the statement all material and all additional required disclosers," Pit explained.
In terms of this specific incident Tesla, though having conducted their own investigation into the accident, failed to disclose the information to investors before their secondary offering. Something Pitt said strikes him as a major violation of the laws.
"The investors were not told about this and when the news did become public Tesla stock dropped perceptively, which suggests the information was viewed by the marketplace and by reasonable investors as highly material," Pitt said.
In terms of a potential remedy, Pitt relayed that in addition to Tesla having to return money it received in the secondary sale of the stock, it could also face individual lawsuits from private plaintiffs.
"The one comment that I found most disturbing was that Musk, when questioned, said the disclosures that were made in the registration were boilerplate and the SEC has a long history of disliking boilerplate disclosures," Pitt noted
Pitt views the use of Musk's boilerplate disclosure in this instance to be particularly troubling, as the distinction between hypothetical matters and actuality is something the SEC does not take lightly, and only further emphasizes full disclosure was not made.
Shares of Tesla are trading lower by 0.04% to $224.77 on Tuesday afternoon.
Separately, TheStreet Ratings rates Tesla as a "Sell" with a ratings score of "D+." This is driven by multiple weaknesses, which TheStreet Ratings believes should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks TheStreet Ratings covers.
The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.
TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author.
You can view the full analysis from the report here: TSLA
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