SEC Investigating Tesla for Possible Securities-Law Breach

Musk is going to pay dearly for releasing autopilot software before it was ready

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 reports Jean Eaglesham, Mike Spector and Susan Pulliam of The Wall Street Journal.

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.

“Tesla has not received any communication from the SEC regarding this issue," the company spokeswoman said. “Our blog post last week provided the relevant information about this issue."

Tesla learned of the crash soon after it happened and informed auto-safety regulators of the incident on May 16, when it had just begun investigating the accident, the company said last week. Tesla at that time hadn’t yet determined the car was using Autopilot. Tesla said it alerted regulators to the crash sooner than rules require.

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.

After alerting safety regulators to the crash, Tesla sent an investigator on May 18 to Florida to retrieve data from the car for the first time, the company said. Tesla completed reviewing data from the vehicle the last week of May, the company said.

“The damage sustained by the Model S in the crash limited Tesla’s ability to recover data from it remotely," a company spokesman said. “During the last week of May, Tesla was able to finish its review of the logs and complete its investigation. The financing round had already taken place by that time," he said. Jean Eaglesham, Mike Spector and Susan Pulliam – The Wall Street Journal