SEC Is Reportedly Investigating Tesla for Not Disclosing Autopilot Death

Jul 11, 2016

The Securities and Exchange Commission would like to know a little bit more about what Tesla Motors and Elon Musk knew about a fatal Tesla crash in early May.

On Monday, the Wall Street Journal reported that SEC officials are looking into whether Tesla (tsla) and Musk violated securities laws when the car company and its CEO sold $2 billion worth of shares in mid-May without disclosing the fact that a driver had been killed while reportedly using the car manufacturer's autopilot feature. It's not confirmed that the autopilot function feature is to blame, but regulators are looking into the cause of the crash. If autopilot is to blame, then the driver Joshua Brown, will be the first known fatality connected to the semi-autonomous function, which Tesla has marketed heavily since rolling out last fall.

The crash happened 11 days before the offering, and the car company alerted regulators about the crash on May 10. But said nothing to its investors, who didn't find out until highway authorities went public with their investigation a little over a week ago, six weeks after the offering.

Fortune was the first to write about Tesla and Musk's potential securities law violation last week. Musk said that he and his company hadn't broke any securities laws because he said the fatal crash was not "material" to the company's business. He called Fortune's article, "BS."

But in an SEC filing just days after the crash, Tesla said that a possible fatal accident and a potential claim related to it would be a material event to “our brand, business, prospects, and operating results.” Tesla does not carry insurance against liabilities claims connected to its autopilot feature.

Brown's family has hired a personal injury law firm to investigate the crash and potentially bring a claim.

Companies are required to disclose events that an investor would reasonably think is important to the operations of the company, and could impact its results. The disclosure rules are even more strict around the time of an offering.

John Coffee, a law professor at Columbia University and an expert in securities law, told Fortune last week that he believed the company should have disclosed news of the death earlier. “I think it is material as that death has changed both the public’s and the insurance industry’s perception of self-driving cars,” wrote Coffee in an email to Fortune.

The SEC declined to comment for this story. A Tesla spokesperson told CNBC that the company has not been contacted by the SEC.

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