The U.S. securities regulator has opened an investigation into Tesla Inc following a whistleblower complaint that the company failed to properly educate its shareholders and the public of the fire risks associated with faults in the solar panel system on several years, according to a letter from the agency.
The investigation has increased regulatory pressure on the world’s most valuable automaker, which is already facing a federal safety investigation into crashes involving its driver assistance systems. Concerns about the Tesla solar systems fires have been previously released, but this is the first report of an investigation by the securities regulator.
The United States Securities and Exchange Commission disclosed the Tesla investigation in response to a Freedom of Information Act request by Steven Henkes, a former Tesla field quality manager, who filed a whistleblower complaint about solar systems in 2019 and asked the agency for information on the report. .
“We have confirmed with Division of Enforcement staff that the investigation you are looking for cases from is still active and ongoing,” the SEC said in a Sept. 24 response to Henkes, declining its request to provide its files. The SEC official said the letter should not be taken by the agency as an indication that violations of the law had taken place. Reuters news agency independently confirmed that the SEC letter was legitimate.
Henkes, a former head of Toyota Motor’s quality division, was fired from Tesla in August 2020 and he sued Tesla, saying the dismissal was in retaliation for raising safety concerns. Tesla did not respond to questions emailed by Reuters, while the SEC declined to comment.
In the SEC complaint, Henkes said Tesla and SolarCity, which it acquired in 2016, did not disclose its “liability and exposure to property damage, risk of user injury, fire, etc. . to shareholders “before and after the acquisition.
Tesla also did not notify customers that faulty electrical connectors could cause fires, according to the complaint.
Tesla has told consumers it needs to perform maintenance on the solar panel system to avoid a failure that could shut down the system. He did not warn of the fire risks, offer a temporary shutdown to mitigate the risks or report the issues to regulators, Henkes said.
Tesla shares fell 5.5% to $ 960.25 on Monday after the Reuters report.
More than 60,000 residential customers in the United States and 500 government and business accounts have been affected by the problem, according to its lawsuit filed in November last year against Tesla Energy for wrongful termination.
It is not known how many of them remain after Tesla’s remediation program.
Henkes, longtime director of Toyota’s North American quality division, joined SolarCity as a quality engineer in 2016, a few months before Tesla acquired SolarCity. After the acquisition, his duties changed and he became aware of the widespread problem, he told Reuters.
Henkes, in the SEC complaint, said he told Tesla management that Tesla must shut down fire-prone solar systems, report to safety regulators and educate consumers. When his calls were ignored, he filed complaints with regulators.
“The senior lawyer cautioned against any communication of this matter to the public as damaging Tesla’s reputation. For me, it’s criminal, ”he said in the SEC complaint.
Litigation and concerns over faulty connectors and issues with the Tesla solar system date back many years. Walmart in a 2019 lawsuit against Tesla said Tesla’s rooftop solar system led to seven store fires. Tesla denied the allegations and the two made a deal.
Business Insider reported on Tesla’s program to replace defective solar panel parts in 2019.
Several residential customers or their insurers have sued Tesla and parts supplier Amphenol over fires related to their solar systems, according to documents provided by legal transparency group PlainSite.
Henkes also filed a complaint with the United States Consumer Product Safety Commission, which CNBC reported this year is investigating. The CPSC and Amphenol did not respond to the request for comment.