- The Securities and Exchange Commission is suing TeslaCEO Elon Musk on charges that he made “false and misleading statements” in tweets on August 7 claiming he could take the company private at $US420 a share.
- The SEC says Musk knew he had no such deal on the table and accuses him of knowingly 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 Exchange Commission is suing Tesla CEO Elon Musk on charges that he made “false and misleading statements” and wants to bar him from helming a public company.
The SEC says the charges stem from Musk’s tweets about taking his electric-car company private at $US420 a share, a claim he tweeted to his 22 million followers on August 7.
Tesla shares fell as much as 11% in after-hours trading on the news.
The SEC alleges that Musk’s initial tweet about taking Tesla private was “false and misleading” and that he continued to tweet such statements, one of them being: “Investor support is confirmed. Only reason why this is not certain is that it’s 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 $US420 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.”
Musk responded to the SEC’s lawsuit in a statement: “The unjustified action from the SEC leaves me deeply saddened and disappointed. I have always taken action in the best interest of the truth, transparency and investors. Integrity is the most important value in my life and the facts show I have never compromised this in any way.”
Reports that the SEC had subpoenaed Tesla over Musk’s tweet surfaced on August 15.
Musk also tweeted on August 7 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 a Friday-night press release, Musk explained that funding for the deal had in fact not been secured and that discussions had 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,” Musk wrote. “The Board indicated that they agree.”
(If you are a Tesla employee or customer who has a story to share about a car or experience with the company, give me a shout at [email protected].)
Burn of the century
After Musk’s initial tweet about taking the electric-car maker private at $US420 a share, Tesla shares rose 6% and ended the day up over 10%, the SEC notes.
It also says Musk had been vocal about his hatred for short sellers, or investors betting that Tesla’s share price would drop. A few months before he said that he could take Tesla private, he tweeted that the short sellers 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 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 31 meeting with the fund “lacked discussion of even the most fundamental terms of a proposed going-private transaction.”
Musk did, however, begin emailing on August 2 about the potential of such a transaction within Tesla. Tesla execs and friends of Musk have said they were caught off guard when he tweeted about it five 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 recommends 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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