The U.S. Securities and Exchange Commission (SEC) has sued Tesla CEO Elon Musk for false and misleading comments made during his August 7th, 2018 tweet-storm, when Musk alleged that Tesla was potentially moving towards privatization.
According to Bloomberg, citing a September 27th, 2018 filing in New York southern district court, Musk has been accused of misleading investors when he claimed that he had “funding secured’ to take Tesla private. The SEC has accused Musk of fabricating the claim in his tweets.
Musk has been accused of violating section 10(b) of the U.S. Exchange Act.
The SEC seeks to prevent Musk from serving as an officer or director of a public company.
It’s not clear if this is just for the duration of the suit or forever. Bloomberg reports that this is a common request made during SEC lawsuits.
The SEC’s complaint specifically lists three tweets from Musk as false or misleading:
- “My hope is *all* current investors remain with Tesla even if we’re private. Would create special purpose fund enabling anyone to stay with Tesla.”
- “Shareholders could either to [sic] sell at 420 or hold shares & go private.”
- “Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote.”
According to the SEC’s filing, “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.”
The SEC court filing states that when Musk published his tweets he “had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source.”
“Musk made his false and misleading public statements about taking Tesla private using his mobile phone in the middle of the active trading day,” reads an excerpt from the SEC’s filing.
“He did not discuss the content of the statements with anyone else prior to publishing them to his over 22 million Twitter followers and anyone else with access to the Internet.”
The SEC added that Musk failed to adequately inform Nasdaq about his intentions of making such a public announcement about his company. Nasdaq rules require at least a 10-minute warning before companies share information of this calibre.
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
The SEC began its inquiry into Musk on August 9th, 2018. It initially seemed that the investigation would depend on whether or not Tesla had filled the appropriate paperwork to designate Musk’s Twitter account as an official channel for making Tesla business-related announcements.
According to the SEC’s September 27th filing, Musk’s account is viable to announce Tesla business information. As such, Musk is now facing accusations of misleading investors.
While it’s been revealed that Musk had never actually secured funding to privatize his company, the SEC has shared what it’s learned about Tesla’s meetings with the Saudi government’s Public Investment Fund (PIF) that Musk claimed would financially support any potential privatization.
According to Musk, he first met with Saudi representatives in January 2017. During the meeting, members of the fund expressed a desire to invest heavily in Tesla, as well as for the company to open a factory in the Middle East.
Musk allegedly met with the Saudi government again on July 31st, 2018, at the request of a member of the PIF. During this meeting, the Saudi government raised the same point about opening a factory in the Middle East, according to Musk.
Musk said he assumed that building a factory in the Middle East would be a condition of his deal with the fund, depending on how much money the Saudi government chose to invest. According to the SEC’s complaint, Musk didn’t share this assumption with anyone else.
At the end of the July 31st meeting, Musk was allegedly asked for his terms, as well as how he would manage a go-private transaction. If his terms were reasonable, Saudi government representatives reportedly said they would be comfortable moving forward with the deal.
According to Musk, no clarifications, no written agreements and no confidential information were discussed.
The SEC’s September 27th filing claims that Musk and the PIF didn’t meet again until August 10th, 2018 — three days after the August 7th tweet-storm.
Tesla’s stock closed at $307.52 USD (roughly $400.90 CAD). At the time of this writing, Tesla stock sits at $267.01 USD (roughly $348.05 CAD).
Update 28/09/2018 9:47am: CNBC reported early Friday morning that Musk has rejected a no-guilt settlement offer from the SEC. He denies the SEC’s claims, its fine and its conditions. The SEC offered Musk a fine and the option to step down as Tesla’s chairman for two years.
Update 28/09/2018 8:02pm: According to TechCrunch, Musk has issued a statement noting, “This unjustified action by the SEC leaves me deeply saddened and disappointed. I have always taken action in the best interests of truth, transparency and investors. Integrity is the most important value in my life and the facts will show I never compromised this in any way.”
The settlement would see Musk replaced by two independent directors.
Musk didn’t sign the deal because by settling he wouldn’t feel truthful to himself, according to The CNBC.