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SEC probes Tesla over whistleblower claims on solar panel defects

According to a letter from the agency, the US Securities and Exchange Commission has opened an investigation into Tesla Inc (TSLA.O) over a whistleblower complaint that the company failed to properly notify its shareholders and the public of fire risks associated with solar panel system defects for several years.

The investigation puts more regulatory pressure on the world’s most valuable manufacturer, which is already under investigation by the federal government for accidents involving its driver assistance systems. Although there have been earlier reports of fires caused by Tesla solar systems, this is the first disclosure of an investigation by the securities regulator.

The SEC revealed the Tesla investigation in response to a Freedom of Information Act request from Steven Henkes, a former Tesla field quality manager who submitted a whistleblower complaint regarding solar systems in 2019 and requested information on the study.

The SEC responded on Sept. 24 to Henkes’ request for records, saying, “We have confirmed with Division of Enforcement officials that the inquiry from which you seek records is still active and ongoing.” The letter, according to the SEC official, should not be interpreted as an admission by the agency that there were legal infractions. The legitimacy of the SEC letter was independently confirmed by Reuters.

Henkes, a former Toyota quality division manager, was sacked from Tesla in August 2020, and he filed a lawsuit against the company, alleging that his firing was in reprisal for voicing safety concerns. Tesla did not respond to Reuters’ emailed questions, and the Securities and Exchange Commission declined to comment. Henkes claimed in the SEC complaint that Tesla and SolarCity, which it bought in 2016, failed to disclose their “responsibility and exposure to property damage, risk of user harm, fire, and other risks to stockholders” both before and after the transaction.

According to the complaint, Tesla apparently failed to tell customers that malfunctioning electrical hookups might cause fires. Tesla informed customers that it needed to do maintenance on the solar panel system in order to avoid a failure that would cause the system to shut down. According to Henkes, the company failed to warn of fire dangers, offer a temporary closure to lessen risk, or disclose the problems to regulators.

Following the Reuters article, Tesla shares plummeted as much as 6.4 percent to $950.5, the lowest level in more than two months. Tesla’s stock was on track to close the session down 20% from its record-high closing on Nov. 4, proving that it is in a bear market by a conventional definition. According to his case filed in November last year against Tesla Energy for wrongful termination, the issue affected more than 60,000 home customers in the United States, as well as 500 government and commercial accounts.

It’s unclear how many of those will be left after Tesla’s repair programme is completed. Henkes, a former manager at Toyota’s North American quality division, joined SolarCity as a quality engineer in 2016, just months before Tesla bought the company. His responsibilities altered after the acquisition, and he became aware of the broad problem, he told Reuters. According to the SEC lawsuit, Henkes warned Tesla management that the company needed to shut down the fire-prone solar installations, alert consumers, and report to safety regulators. He filed complaints with regulators after his calls went unanswered.

“Any public disclosure of this matter, according to the top lawyer, would be detrimental to Tesla’s reputation. This is criminal in my opinion “According to the SEC lawsuit, he stated.

For numerous years, there has been litigation and concern over faulty connectors and Tesla solar system troubles. In a lawsuit filed against Tesla in 2019, Walmart claimed that the latter’s roof solar system was responsible for seven shop fires. Tesla rejected the charges, and the two parties reached an agreement. Tesla’s scheme to replace damaged solar panel parts was reported by Business Insider in 2019.

According to records given by legal transparency group PlainSite, some home customers or their insurers have sued Tesla and parts supplier Amphenol (APH.N) over fires related to their solar systems.

Henkes also filed a complaint with the Consumer Product Safety Commission of the United States, which CNBC reported was looking into the case earlier this year. Requests for response from the CPSC and Amphenol were not returned.