Regulation D, as I fully expect most readers know, is the typical (though not exclusive) way to raise business capital without SEC registration; it permits issuers to sell securities to wealthy investors with minimal formal disclosure requirements.  But lurking in Reg D is a “bad boy” disqualification for companies and people who do bad things.

Recently Tesla and Elon Musk pleaded to a $20M fine (each) for Elon’s loose talk about having lined up financing to go private.  Some elements of that settlement, restricting Elon’s actions and his agreement not to “do it again,” seemingly triggered the “bad boy” provisions that would eliminate Tesla’s use of Reg D.  Off to the SEC scurried the Tesla lawyers to ask for a waiver so Tesla could indeed use Reg D for private financing.

The SEC granted the waiver in a No Action Letter dated October 16, on condition that Elon indeed complied in the future with the SEC orders against him; this waiver is not in and of itself extra-ordinary, and indeed SEC regulations contemplate the possibility where there is showing of good cause, but the need for asking the SEC for No Action highlights the wide repercussions of loose talk by executives and board members.

Leaving the interesting question of why Reg D availability is so important to Tesla; assuming they would go to capital markets for financing, one would assume they would be looking for big dollars from big players, as to which other exemptions from registration would be available.  Maybe Musk will tell us some day  — or not.