What Could Elon Musk’s SolarCity Be Hiding?

If a company that you invested in had filed several requests with the Securities and Exchange Commission to treat its filings as confidential and not to disclose them to the general public, you'd probably be wondering what was going on at the company and why the management team wasn't sharing the latest developments with shareholders.

Investors in renewable energy company SolarCity Corp. should be wondering just that given several "confidential treatment orders" filed with the SEC over the last few months. For those not familiar with the term "confidential treatment order" its something that may be granted by the SEC under Rule 24b-2 of the Securities Exchange Act of 1934 that allows a company to request that any filing with the SEC be treated as confidential and not disclosed to the general public. Reasons for the request tend to center around the view the information could cause material or financial harm to the company or a business partner. Given the nature of the request, a company must provide written reasons to support the request when making it. When granted, the information tends to be kept confidential for a certain period of time, which sounds like simply prolonging the inevitable.

Facebook was granted a "confidential treatment" order by the SEC and withheld potentially relevant investing information in a June 2012 earnings report filed in July of that year. The withheld information pertained to a portion of the earnings report detailing an agreement between Facebook and social game company Zynga, maker of then-popular FarmVille series of Facebook games as well as Words With Friends. The confidential treatment order gave Facebook the legal right to withhold the information from the public and investors until at least the end of 2012.

As investors would eventually learn, the nature of the relationship between the two companies was falling apart. In November 2012, Zynga disclosed in a filing it had amended the terms of its relationship with Facebook so it could host its Web games outside of Facebook's platform. The new agreement also paved the way for Facebook to produce its own games and become a direct competitor to Zynga. With that filing, Zynga fell to $2.12, roughly an 85% drop from its post-initial public offering high of $14.69 in March 2012.

Turning back to SolarCity, the company was granted confidential treatment orders on March 18, June 23, July 7 relating to recent 10-Q and its 2014 10-K filings. Even thought it will be some time until we find out the nature of the confidential information and assess the impact on the company's business, we do know analyst expectations for the company's earnings have been falling deeper into the red over the last 90 days for both 2015 and 2016 and, subsequently, SolarCity shares have fallen 18% since mid-March.

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