SEC Investigating Tesla for Possible Securities-Law Breach
The Securities and Exchange Commission is investigating whether Tesla Motors Inc. breached securities laws by failing to disclose to investors a fatal crash in May involving an electric car that was driving itself, a person familiar with the matter said, heightening scrutiny of how the company handled the information.
The May 7 accident killed the driver, Joshua Brown, a 40-year-old Tesla owner who collided with an 18-wheel semi-truck that pulled in front of him on a Florida highway.
Tesla alerted the National Highway Traffic Safety Administration, the U.S. car-safety regulator, to the crash and investigated to determine whether the car was using the company’s Autopilot system, which lets cars drive themselves under certain circumstances. But Tesla didn’t disclose the crash to investors in a securities filing.
The car-safety agency opened an investigation into the Autopilot technology. The National Transportation Safety Board also is investigating the crash to determine whether it reveals systemic issues tied to development of driverless cars and probes of accidents involving them, an agency spokesman said Monday.
The SEC is scrutinizing whether Tesla should have disclosed the accident as a “material” event, or a development a reasonable investor would consider important, according to the person familiar with the matter. The SEC’s inquiry is in a very early stage and may not lead to any enforcement action by regulators, the person said.
A Tesla spokeswoman pointed to a blog post by the Palo Alto, Calif., company, asserting that the May 7 crash didn’t require disclosure to investors. Tesla has said the fatal crash was the first in more than 130 million miles driven with Autopilot engaged since the technology made its debut in October. An SEC spokesman declined to comment.
The company didn’t disclose the accident in securities filings, such as the one from May 18 when it prepared to sell $2 billion in stock, which included nearly 2.8 million shares sold by Tesla Chief Executive Elon Musk. Tesla has said Mr. Musk’s sale was triggered by tax requirements. The share sale took place May 18 and May 19.
Tesla shares rose nearly 2% on July 1, the first day of trading after auto-safety regulators disclosed their investigation. Tesla shares have continued to rise since then and closed at $224.78 Monday as the S&P 500 hit a record high. In after-hours trading, Tesla shares fell 1.4% to $221.60.
Auto makers often don’t disclose to investors traffic fatalities, which in 2015 topped an estimated 35,000 in the U.S., according to regulators. Car companies often disclose safety recalls or product-liability suits in securities filings when they trigger significant financial charges.
Owner’s manuals warn Autopilot may not detect all objects and state that the technology “is designed for your driving comfort and convenience and is not a collision warning or avoidance system.” The company, while calling Autopilot the most advanced such system on the road, says it doesn’t turn a Tesla into an autonomous vehicle and doesn’t allow drivers to “abdicate responsibility.”