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Tesla's board may not be able to rein in Musk

Key Points
  • Tesla CEO Elon Musk is showing that it may be difficult for Tesla's board to rein him in. 
  • Monitoring Musk's public communications is a key term of the deal he is trying to make with the SEC to settle fraud charges. 
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Tesla CEO Elon Musk's recent tweet mocking federal regulators may be a sign that Tesla's board of directors can't control his behavior — no matter what the consequences, a former federal securities attorney said Monday.

Musk stoked more controversy last week when he sent out a tweet referring to the Securities and Exchange Commission as the "Shortseller Enrichment Commission" after settling fraud charges with the agency for making allegedly misleading statements about having the funding needed to take Tesla private.

A judge handling the settlement has ordered Musk and the SEC to write a joint letter explaining why the court should approve the deal. This is not a terribly unusual move for the judge, but it leaves open the possibility she will reject the settlement.

Tesla shares drop 7% thanks to Elon Musk's tweets mocking SEC

The behavior at such a critical time suggests Tesla's board of directors may not be able to rein Musk in.

"The judge may have real concerns Tesla won't be able to do anything about his tweets, and social media is difficult to pre-clear or approve in advance unless he's willing to cooperate," former SEC enforcement attorney Alma Angotti said Monday on CNBC's "Squawk on the Street." "This is kind of a signal that he may not be willing to cooperate."

Angotti is the co-head of global investigations and compliance at Navigant in Washington, D.C.

Under the terms of the proposed deal with the SEC, Tesla has to create some kind of mechanism to monitor Musk's public communications related to Tesla. Corporate governance expert Betsy Atkins told "Squawk on the Street" she is skeptical Musk is going to stop tweeting. That puts the board in a difficult spot.

"The board of Tesla is in a Catch-22. If they remove Elon Musk, the stock goes down 30 percent. If they leave him in, he continues to violate the SEC agreement. So they have a tough decision," she said.

Tesla shares were trading down 3.3 percent Monday morning.

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