Documents filed in a Manhattan federal court Thursday reveal the U.S. Securities and Exchange Commission is suing Tesla CEO Elon Musk for fraud. The SEC opened an investigation into Musk after the CEO fatefully tweeted his intent to take the company private. “Funding secured,” Musk wrote in the August 7th tweet.
The go-private plan quickly fell apart. In the lawsuit, published by Bloomberg, the SEC accuses Musk of fabricating the claim made to 22 million social media followers, many of them investors.
“Musk made his false and misleading public statements about taking Tesla private using his mobile phone in the middle of the active trading day,” the SEC wrote. “In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source.”
In a later blog post, Musk claimed Tesla had engaged in talks with Saudi Arabia’s sovereign wealth fund, which was seen as a potential backer for the multi-billion share buy-up plan. Still, no details on secured funding arose. The Saudis later said this wasn’t their style of investment, and later announced $1 billion in funding for a startup Tesla rival. As it grew increasingly obvious that the statement didn’t have legs, the automaker’s share price plummeted. Investment banks were called in to seek the necessary funding before Musk pulled the plug on the plan.
Lawsuits from several investors rolled in around the same time the SEC investigation kicked off. Earlier this month, word of a Department of Justice probe broke in the media. While Musk is allowed to take his publicly traded company private, protocol demands that he announce his intent in a proper fashion to avoid blindsiding investors and traders.
“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 lawsuit states. “He also did not inform Nasdaq that he intended to make this public announcement, as Nasdaq rules required.”
“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 transaction. 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.’”
If the SEC gets its way, Musk will find the levers of power pulled from his grasp. The lawsuit seeks an order barring him from serving as an officer or director of a public company.
Tesla’s stock, already weakened by the shenanigans of the past month, plunged in after-hours trading, hitting $275.72 per share at 5 p.m. On the day of the Tweet That Started It All, Tesla’s stock closed at $379.57.
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