SEC sues Elon Musk for fraud, seeks his ouster as Tesla chief
28 Sep 2018
1
The US Securities and Exchange Commission (SEC) has accused Tesla Inc chief executive Elon Musk of fraud and sought his removal as head of the electric car company, after the maveric entrepreneur made a series of “false and misleading” tweets about potentially taking Tesla private last month.
On 7 August Musk made a surprise announcement that he was thinking of taking Tesla private. Musk told his more than 22 million Twitter followers that he might take Tesla private at $420 per share, with “funding secured”.
But his team of executives had no knowledge of his plans. Twelve minutes later, Tesla’s head of investor relations told investors to ask Musk’s chief of staff whether Musk’s announcement was “legit”, the SEC pointed out.
On 24 August, after news of the SEC probe had become known, Musk again Tweeted that investor resistance forced Tesla to remain public.
Musk had not discussed the $420 figure with any potential funding source before he broached the subject to Tesla’s board in a 2 August email, the SEC said.
SEC said Musk “knew or was reckless in not knowing” that his tweets about taking Tesla private at $420 a share were false and misleading, given that he had never discussed such a transaction with any funding source.
The SEC said Musk met for less than an hour with three representatives of Public Investment Fund, at the company’s Fremont, California, plant on 31 July during which the lead representative for the Saudi Arabian sovereign wealth fund expressed interest in taking Tesla private if the terms were “reasonable,” according to the lawsuit.
Musk acknowledged the meeting lacked discussion of “even the most fundamental terms” of the deal and nothing was set in concrete terms.
The SEC said its investigation into Tesla is ongoing.
The SEC lawsuit comes as Tesla has been struggling to deliver its new Model 3 sedan, which is key to the company’s future profitability, after a long series of production issues and delays.
The move to bar Musk as an officer of any public company was a rare move for the SEC against the CEO of such a well-known firm.
But, despite the pranks, Musk, 47, remains the public face of Tesla and without him the money-losing car maker, which has a market value of more than $50 billion, would go deeper into the red.
The Department of Justice has questioned the company about Musk’s tweets, the company said this month.
Musk said he had done nothing wrong. “This unjustified action by the SEC leaves me deeply saddened and disappointed,” he said in a statement. “Integrity is the most important value in my life and the facts will show I never compromised this in any way.”
Tesla’s board said they are “fully confident” in Musk.
The SEC’s lawsuit, filed in Manhattan federal court, comes at the end of two months of uncertainty for Tesla’s investors, brought about by Musk’s false Twits offering to buy out shares in his company at $420 per share, with “funding secured”.
The Wall Street Journal reported on Thursday that the SEC filed the lawsuit after a proposed settlement with Musk fell apart. The SEC did not immediately respond to a request for comment late on Thursday.
In its lawsuit, the SEC said Musk calculated the $420 price per share based on a 20 per cent premium over that day’s closing share price and because of the number’s slang reference to marijuana. The lawsuit, which cites emails and text messages between Musk and Tesla executives, quoted Musk as saying he thought his girlfriend “would find it funny, which admittedly is not a great reason to pick a price”.
After the initial tweet, Tesla’s chief financial officer asked Musk “would it help” if executives drafted a blog post or employee email to explain his tweet. Musk responded, “Yeah, that would be great.”
.webp)
.webp)
