The week in GRC: Tesla shareholder group calls for governance changes, and Icahn sues Dell over going-public plans
– The Wall Street Journal reported that, according to people familiar with the matter, Federal Bureau of Investigation agents are examining whether Tesla misstated information about production of its Model 3 sedans and misled investors about the company’s business going back to early 2017. Action in the criminal investigation, headed by the US attorney’s office in San Francisco, has stepped up in recent weeks after the SEC settled separate civil charges with Tesla and CEO Elon Musk, the people said. Musk and Tesla settled without admitting or denying wrongdoing.
In a statement, Tesla said it had ‘received a voluntary request for documents from the Department of Justice (DoJ) about its public guidance for the Model 3 ramp’ earlier this year and was ‘co-operative in responding to it.’ The company said it hasn’t received any subpoenas or further requests from the agency. Tesla added that it has been ‘transparent about how difficult’ Model 3 production would be, and that ‘it took us six months longer than we expected to meet our 5,000 unit-per-week guidance.’ The DoJ and SEC declined to comment.
– The state of California agreed not to enforce its state net neutrality law until a final court decision on the Trump administration’s decision to overturn Obama-era open internet rules, according to Reuters. The decision likely means the California net neutrality law, which was set to take effect on January 1, 2019 now will be on hold for a year or longer. The law has been challenged by the DoJ and trade groups representing providers such as AT&T, Verizon Communications and Comcast.
A federal appeals court set oral arguments for February 1 on the administration’s net neutrality rule reversal. California agreed it would not seek to enforce its law until that court’s decision and any potential review by the US Supreme Court.
– General Electric said the SEC is expanding its investigation of the company’s accounting to look at a $22 billion charge in the company’s power unit, according to Bloomberg. The DoJ is also examining the write-down from goodwill impairment, GE’s CFO Jamie Miller said. The company confirmed the charge in its earnings report, four weeks after flagging the issue to investors.
The company had previously said the SEC was looking at accounting in the power division and an old insurance portfolio. ‘We are co-operating with the SEC and DoJ as they work on these matters,’ Miller said.
– According to Reuters, US Supreme Court justices indicated that they may issue more pro-business rulings giving companies broad latitude to use arbitration rather than the courts to resolve disputes with employees, customers or other businesses. The nine justices heard arguments in two cases testing the scope of company agreements forcing disputes to be handled by an arbitrator instead of a judge.
In their questioning of the parties in the cases, the justices indicated a reluctance to limit the ability of companies to keep such disputes out of court. The conservative-majority Supreme Court in recent years has issued a series of decisions endorsing the power of arbitration and curbing class-action claims of various types. Both cases heard on Monday involved appeals of lower court rulings that business groups complained would harm the ability of companies to use arbitration as a way to resolve conflicts and would undermine federal arbitration law.
– The WSJ reported that Third Point’s initial plan to revamp Campbell Soup Company includes exploring a breakup of the company. Daniel Loeb’s activist hedge fund firm is waging a proxy fight to replace Campbell’s entire 12-person board. If it wins the board, Third Point believes the company should decide within 100 days whether to break up into two major units, one focused on meals and beverages and the other focused on snacks, according to a presentation released by Third Point.
The hedge fund, which has said the only justifiable option under the current board is a full sale of the company, believes a split would make the company more attractive to investors and potential buyers down the line, according to people familiar with the plans.
– The WSJ reported that Bunge CEO Soren Schroder said a newly formed board committee will consider all options to improve the agricultural company’s value, but it would bring no ‘preconceived’ plans. The world’s largest soybean processor added four new directors to its board, three of which will join the new committee that may open the door to a potential sale.
The board changes are part of settlements with two activist investment firms, DE Shaw & Co and Continental Grain Co, which have pushed Bunge to improve operations and look at other ways to boost its shares. The investment firms aren’t specifically pushing for a sale of the company but want it to explore all possible options to improve value. The company said the committee ‘will conduct a comprehensive, strategic review focused on enhancing long-term shareholder value.’
– Senator Ron Wyden, D-Oregon, released a draft bill that would give the Federal Trade Commission the ability to place harsher penalties on tech companies that violate users’ privacy, CNN reported. The bill proposes a national ‘Do Not Track’ database that allows US consumers to opt-out from websites storing their personal information.
Wyden is targeting companies that store information on more than 1 million users. Those companies would also have to submit an ‘annual data protection report’ ensuring compliance with the law. The report must include any regulations they possibly violated and include statements from the company’s CEO, chief privacy officer and chief information security officer.
– According to Reuters, activist investor Carl Icahn sued Dell Technologies, alleging that the computer maker did not disclose financial information related to its plans to go public by buying back its tracking stock. Icahn called the proposed deal a ‘conflicted transaction that benefits the controlling stockholders, at the expense of the DVMT stockholders.’
Dell said in July it would pay $21.7 billion in cash and stock to buy back shares tied to its interest in software company VMware, returning it to the stock market without an IPO. Icahn and other hedge fund investors have resisted the plan, saying the proposed deal undervalues the tracking stock.
‘We believe this is a threat blatantly deployed in an attempt to coerce DVMT stockholders to vote in favor of the merger, or else risk the unknown consequences of the forced IPO conversion,’ Icahn said. Dell will hold a shareholder meeting on December 11 to vote on the deal. A Dell spokesperson said Icahn’s allegations were ‘unfounded’, adding that the company would file a response later in the day.
– The SEC voted to adopt amendments to modernize the property disclosure requirements for mining registrants, and related guidance. The amendments are intended to give investors a more comprehensive understanding of a registrant’s mining properties, which should help them make more informed investment decisions. The amendments will also more closely align the SEC’s disclosure requirements and policies for mining properties with industry and global regulatory practices and standards.
– MSCI plans to launch a new suite of market indices that won’t include stocks with unequal voting rights, in an effort to cater to investor preferences against dual-class listings, according to the WSJ. The new indices are scheduled to be launched in early 2019. They will be an addition to MSCI’s existing equity indices that include non-voting shares.
MSCI supports equal voting rights among investors, but said it found in a consultation that international institutional investors disagreed whether stock benchmarks should be adjusted to reflect the unequal voting rights. ‘As of today, we do not believe that preferences and constraints on voting rights, among other governance considerations, should impact the definition of the investable universe underpinning these benchmarks as equity securities with no or unequal voting rights are still investable for most investors,’ said Remy Briand, managing director and chair of the MSCI Index Policy Committee.
– The SEC’s enforcement division issued its annual report. Quantitatively, the agency brought a diverse mix of 821 enforcement actions over the previous year, including 490 stand-alone actions, and returned $794 million to harmed investors. A significant number of the SEC’s stand-alone cases concerned investment advisory issues, securities offerings and issuer reporting/accounting and auditing, collectively comprising approximately 63 percent of the overall number of stand-alone actions.
The SEC also continued to bring actions relating to market manipulation, insider trading and broker-dealer misconduct, with each comprising approximately 10 percent of the overall number of stand-alone actions, as well as other areas. It obtained judgments and orders totaling more than $3.945 billion in disgorgement and penalties.
– The WSJ reported that a group of Tesla shareholders, including several US state investment officials, called on the company’s board to make sweeping changes to its governance to enhance oversight of CEO Elon Musk.
In a letter sent to three Tesla directors, the shareholders said Tesla’s board should create a plan to refresh its membership and to set time lines for some directors to leave, among other demands. The letter also said the board should permanently separate the positions of chair and CEO, both of which Musk has long held. The investors, which said they collectively help oversee $774 billion in assets, also called on Tesla’s board to adopt proxy-access rights to give long-term shareholders the power to nominate their own stable of directors.
A Tesla spokesperson declined to comment on the letter.