Musk sued by SEC over tweets about taking Tesla private

Keith Laing
The Detroit News
Tesla CEO and founder of the Boring Company Elon Musk

Washington — The U.S. Securities and Exchange Commission is suing Tesla Inc. CEO Elon Musk for "falsely" announcing on Twitter that he was considering taking the Silicon Valley automaker private. The agency is also seeking to bar him from running Tesla or any other public company.  

On Aug. 7, Musk tweeted: "Am considering taking Tesla private at $420. Funding secured." Later that day, he continued: "Shareholders could either to sell at 420 or hold shares & go private."

"My hope is *all* current investors remain with Tesla even if we’re private," he also wrote then. "Would create special purpose fund enabling anyone to stay with Tesla. Already do this with Fidelity’s SpaceX investment."

In a federal lawsuit filed Thursday in the Southern District of New York, the SEC alleges that Musk's tweets "falsely indicated that, should he so choose, it was virtually certain that he could take Tesla private at a purchase price that reflected a substantial premium over Tesla stock’s then-current share price, that funding for this multi-billion dollar transaction had been secured, and that the only contingency was a shareholder vote. 

"In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source," the lawsuit continues. "Musk’s false and misleading public statements and omissions caused significant confusion and disruption in the market for Tesla’s stock and resulting harm to investors."

Tesla shares dropped more than 13 percent to roughly $266 in after-hours trading on the news — down sharply from the $379 per share they reached after Musk's initial tweets outlining his plans. And a week later, he took a company blog to tell investor that Saudi Arabia's Public Investment Fund was interested in financing the transactions — a claim the Saudi's failed to confirm.

In a statement released by Tesla, Musk said: “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.”

Steven Peikin, co-director of the SEC’s Enforcement Division, said in a statement the agency is suing Musk because “corporate officers hold positions of trust in our markets and have important responsibilities to shareholders. An officer's celebrity status or reputation as a technological innovator does not give license to take those responsibilities lightly."

Added Stephanie Avakian, co-director of the SEC’s Enforcement Division: "Taking care to provide truthful and accurate information is among a CEO’s most critical obligations. That standard applies with equal force when the communications are made via social media or another non-traditional form.”

Musk's tweets on taking Tesla private resulted in a run on the company's stock that led to a temporary suspension of trading of the company’s shares. Tesla shares climbed to $379 by market close on Aug. 7, up $37.58 — and boosted Musk’s personal wealth by $1.4 billion over the course of two hours.

Musk's tweets also came minutes after the Financial Times reported that Saudi Arabia’s sovereign wealth fund had built a stake in Tesla worth about $2 billion — less than 5 percent of the company’s value.

The SEC lawsuit alleges "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 $420 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," the lawsuit says.

The SEC lawsuit also alleges that Musk "also knew that he had not satisfied numerous additional contingencies, the resolution of which was highly uncertain, when he unequivocally declared, 'Only reason why this is not certain is that it’s contingent on a shareholder vote.' 

"Musk’s public statements and omissions created the misleading impression that taking Tesla private was subject only to Musk choosing to do so and a shareholder vote," the lawsuit says. 

David Kudla, CEO of Grand Blanc-based Mainstay Capital Management LLC, said Musk's tweets were a risky way to announce his company's fiscal plans. 

"Musk proves Twitter is not an effective platform to float company structural changes," said Kudla, who has been skeptical of Musk's pronouncements about Tesla's stock and encouraging short-selling the company's shares.

"Elon Musk is in the midst of engineering a significant amount of wealth destruction for Tesla shareholders," Kudla continued. "Thankfully, I have been and remain short Tesla shares. The hits just keep coming for Tesla." 

Michelle Krebs, senior analyst for Autotrader, said the lawsuit against Musk "is a self-inflicted wound that Tesla didn’t need right now with all it has on its plate: production challenges with the Model 3; the push to turn a profit; the revolving door of managers; and an onslaught of competition coming."

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Twitter: @Keith_Laing