Tesla under investigation by SEC over solar panel defects

Tesla under investigation by SEC over solar panel defects

The U.S. securities regulator has opened an investigation into the company's actions over a whistleblower complaint that the company failed to properly notify shareholders and the public of the risks associated with solar panel system defects over several years, according to a letter from the agency.

The probe raises regulatory pressure on the world's most valuable automaker, which is already facing a federal safety probe into accidents involving its driver assistant systems. Concerns about the solar systems of Tesla have been published before, but this is the first report of an investigation by the securities regulator.

The U.S. Securities and Exchange Commission disclosed the probe in response to a Freedom of Information Act request by Steven Henkes, a former Tesla field quality manager, who filed a whistleblower complaint on the solar systems in 2019 and asked the agency for information about the report.

The SEC said in a Sept. 24 response to Henkes, he did not respond to his request to provide its records, and that the Division of Enforcement staff has confirmed that the investigation from which you seek records is still active and ongoing. The letter should not be taken as an indication by the agency that violations of law had occurred, the SEC official said. The SEC letter was legitimate, according to a report by Reuters.

Henkes, a former Toyota Motor Quality Division Manager, was fired from Tesla in August 2020 and sued Tesla in August 2020, claiming that the dismissal was in retaliation for raising safety concerns. Tesla didn't respond to Reuters' emailed questions, while the SEC didn't respond.

In the SEC complaint, Henkes said that Tesla and SolarCity, which it acquired in 2016, did not disclose their liability and exposure to property damage, risk of injury, fire, etc. to shareholders prior to and after the acquisition.

According to the complaint, Tesla didn't notify its customers that defective electrical connectors could lead to fires.

Tesla told consumers that it needed to conduct maintenance on the solar panel system to avoid a failure that could shut down the system. Henkes said that it did not warn of fire risks, offer temporary shutdown to mitigate risk or report problems to regulators.

After the Reuters report, Tesla's shares fell 5.5% to $960.25 on Monday.

More than 60,000 residential customers in the U.S. and 500 government and commercial accounts were affected by the issue, according to a lawsuit filed in November last year against Tesla Energy.

It is not clear how many of them remain after Tesla's remediation program.

Henkes, a longtime manager at Toyota's North American quality division, moved to SolarCity in 2016 as a quality engineer before Tesla acquired SolarCity. After the acquisition, his duties changed and he became aware of the widespread problem, he told Reuters.

Henkes told the SEC he told Tesla management that Tesla needs to shut down the fire-prone solar systems, report to safety regulators and notify consumers. When his calls were ignored, he proceeded to file complaints with regulators.

The top lawyer cautioned against any communication of the issue to the public as a harm to the reputation of Tesla. This is a criminal offense, he said in the SEC complaint.

Litigation and concerns over faulty connectors and Tesla solar system issues stretch back a long time. Walmart against Tesla said the roof's solar system led to seven store fires. Tesla denied the allegations and settled.

Several residential customers or their insurers have sued Amphenol and Tesla over fires related to their solar systems, according to documents provided by the legal transparency group PlainSite.

Henkes also filed a complaint with the U.S. Consumer Product Safety Commission, which CNBC reported this year was investigating the case.