The SEC is suing Tesla CEO Elon Musk for securities fraud
The federal government has sued Elon Musk for securities fraud, accusing the Tesla CEO of misleading investors when he tweeted last month he planned to take the electric-car maker private.
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
The Securities and Exchange Commission filed a complaint in federal court Thursday, alleging Musk misled investors when he tweeted on Aug. 7 that he had obtained funding.
Musk made it seem "that funding for this multi-billion dollar transaction had been secured, and that the only contingency was a shareholder vote," the complaint states. "In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source."
Musk also promised on Twitter that retail investors would be able to maintain their stake in a private Tesla, even though, SEC officials alleged, he had been told before tweeting that this would be "very difficult."
SEC officials detailed the chaos that ensued after Musk's tweet.
"Within minutes of the tweet, Tesla's own head of investor relations questioned whether it was genuine," Steven Peikin, co-director of the SEC's enforcement division, told reporters. Twelve minutes after the tweet, the head of investor relations was texting Musk's chief of staff, asking "Was this text legit?" according to the SEC.
Tesla's investor relations department had not been briefed on the announcement and so took Musk's tweets at face value. That afternoon, they told analysts there was a "firm offer" and that the offer was "as firm as it gets," according to Peikin.
Nasdaq, which requires advance notice of market-moving announcements, had not received one, Peikin said, and halted trading for 90 minutes after Tesla's shares jumped.
Analysts sought clarification. According to the complaint, one analyst asked: "Firm offer means there is a commitment letter, or is this a verbal agreement?" The response from the head of investor relations was: "I actually don't know, but I would assume that given we went full-on public with this, the offer is as firm as it gets."
The SEC is seeking civil penalties and an order blocking Musk from being an officer in a publicly traded company. He could remain as Tesla's CEO until a final court ruling, unless the company decided to drop him, officials said.
"Neither celebrity status nor reputation as a technological innovator provide an exemption from securities laws," said Stephanie Avakian, co-director of the SEC's enforcement division.
Musk issued a statement via Tesla reacting to the SEC's complaint.
"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," he said.
Tesla's board of directors also said in a statement that it was "fully confident in Elon, his integrity, and his leadership of the company, which has resulted in the most successful US auto company in over a century. Our focus remains on the continued ramp of Model 3 production and delivering for our customers, shareholders and employees," the statement said.
The filing also alleged that -- as many on Twitter had suspected -- the share price target was a drug reference.
"According to Musk, he calculated the $420 price per share based on a 20% premium over that day's closing share price because he thought 20% was a 'standard premium' in going-private transactions," the complaint alleges. "This calculation resulted in a price of $419, and Musk stated that he rounded the price up to $420 because he had recently learned about the number's significance in marijuana culture and thought his girlfriend 'would find it funny, which admittedly is not a great reason to pick a price.'"
Tesla stock plunged 12 percent in after-hours trading.