The Securities and Exchange Commission blasted Tesla Motors for using and sharing prohibited accounting information with investors prior to the company’s merger with SolarCity.
The California-based electric vehicle maker used “individually tailored” when it added back costs to revenue numbers calculated under a set of financial rules called GAAP, which are used to inform the SEC about a company’s yearly revenue and expenditures.
The SEC allows the use of some non-GAAP metrics, but most exotic figures that adjust expenditures are prohibited. One common non-GAAP procedure is to exclude irregular expenses, such as those related to acquisitions and other unusual circumstances.
Tesla’s business dealings are nothing if not unusual. The company jumps around from crafting electric vehicles to building solar-panel layered roofs.
Shareholders with Tesla Motors and SolarCity approved a highly contentious merger between the two companies Nov. 17. The deal is expected to be a boon for the debt-riddled solar panel provider but an anchor around Tesla’s neck.
Tesla meanwhile promised to drop Oct. 2 non-GAAP revenue and other exotic accounting methods flagged by the SEC from future earnings filings. The move comes after the regulatory agency confronted the company about the metrics it was using.
The agency specifically used the word “tailored” to describe deliberate and prohibited revenue adjustments meant to make the company appear on solid ground.
“Whenever the SEC uses that specific term, it’s a clear indication that this specific adjustment should not be used, it’s very strong language,” Olga Usvyatsky, the vice president of research at Audit Analytics, told reporters Tuesday.
The SEC in this case was adamant about wanting to see the un-manipulated revenue numbers, Usvyatsky added. “The language is strong, it’s not ‘please,’ in future filings.”
Other tech analysts have torched the company in the past, noting Musk’s ability to futz with numbers in a way that misrepresents actual business standing.
Salome Gvaramia, COO of Devonshire Research Group (DRG), told The Daily Caller News Foundation that Musk’s unorthodox business tactics have flown under the radar for too long.
“[W]e believe it is essential for the SEC to finally call out Tesla on tailored accounting,” Gvaramia said about Tesla’s history of using non-GAAP procedures.
The continued use of these dishonest accounting measures, she added, will lead to “negative implications for Tesla’s investors, specifically as they pertain to the value of the company and its stock.”
Gvaramia, whose group has researched Tesla’s sketchy financial instruments as well as its impact on the environment, said DRG has cautioned Tesla’s investors in the past about the negative consequences of the company’s “aggressive delivery schedules, and atypical financing methods in an established and thriving auto industry.”
The group has also suggested in previous research notes that Tesla’s continued use of prohibited non-GAAP techniques and other unusual business tactics is transforming the company into a type of pyramid scheme, like Enron.
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