Gett ImagesElon Musk
  • The Securities and Exchange Commission is suing Tesla CEO Elon Musk for making “false and misleading statements” because of an August 7th tweet which claimed he would take the company private for $420 a share.
  • The suit says Musk knew he had no such deal on the table and knew that he was misleading the public.
  • The SEC wants to bar Musk from being CEO of a public company.
  • Watch Tesla trade in real time here.

The Securities and Echange Commission is suing Tesla CEO Elon Musk for making “false and misleading statements” and wants to bar him from helming a public company.

The suit accuses him of making false or misleading statements about taking Tesla, his electric-car company, private for $420 a share, a claim he tweeted to his 22 million followers on August 7. Shares fell as much as 11% in after-hours trading on the news.

The SEC suit claims that Musk’s tweet about taking Tesla private was “false and misleading” and that he continued to make false and misleading statements on Twitter — one of them being:

“Investor support is confirmed. Only reason why this is not certain is this is contingent on a shareholder vote.”

The SEC says Musk’s tweets caused market chaos, and harmed investors.

From the complaint:

“Musk knew or was reckless in not knowing that each of these statements was false and/or misleading because he did not have an adequate basis in fact for his assertions. When he made these statements, Musk knew that he had never discussed a going-private transaction at $420 per share with any potential funding source, had done nothing to investigate whether it would be possible for all current investors to remain with Tesla as a private company via a “special purpose fund,” and had not confirmed support of Tesla’s investors for a potential going private transaction.”

Reports that the SEC subpoenaed Tesla over Musk’s tweet surfaced mere days after he tweeted, on August 15th.

Musk also tweeted that he had “funding secured” for such a deal, and that the only step left in the process was getting investor approval.

A few weeks later, though, Tesla announced that it would not go private in Friday press release at around 11:15 pm. Musk explained that funding for the deal had in fact not been secured, and that discussions stalled in their early stages.

“After considering all of these factors, I met with Tesla’s Board of Directors yesterday and let them know that I believe the better path is for Tesla to remain public. The Board indicated that they agree,” Musk wrote.

Burn of the century

After Musk’s initial tweet, Tesla share rose 6%. The next day they rose over 10%, the SEC suit notes. It also notes that Musk had been vocal about his hatred for short sellers — investors betting that Tesla’s share price would go down. A few months before he tweeted that he would take Tesla private, he tweeted that the shorts would get “burned.”

From the complaint:

For example, on May 4, 2018, Musk tweeted, “Oh and uh short burn of the century comin soon. Flamethrowers should arrive just in time.” On June 17, 2018, Musk tweeted that short sellers “have about three weeks before their short position explodes.”

The complaint goes on to say that Musk, who said that he based the “funding secured” tweet on discussions with Saudi Arabia’s sovereign wealth fund, had only very preliminary discussions with the fund. It also said a July 31st meeting with the fund “lacked discussion of even the most fundamental terms of a proposed going-private transaction.”

Musk did, however, begin emailing about the potential of such a transaction within Tesla on August 2nd. Tesla execs and friends of Musk were caught off guard when he tweeted about it 5 days later.

From the complaint:

At approximately 1:23 PM EDT, about 35 minutes after Musk’s initial tweet about taking Tesla private, Tesla’s Chief Financial Officer sent a text message to Musk, “Elon, am sure you have thought about a broader communication on your rationale and structure to employees and potential investors. Would it help if [Tesla’s head of communications], [Tesla’s General Counsel], and I draft a blog post or employee email for you?” Musk responded, “Yeah, that would be great.” Tesla’s Chief Financial Officer then replied, “Working on it. Will send you shortly.”

In its claims for relief the SEC recommeds that Musk pay a penalty and that he be”prohibited from acting as an officer or director” of a public company.

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