Tesla CEO Elon Musk Sued by Securities and Exchange Commission for Fraud
Musk's "funding secured" tweet comes home to roost.
The Securities and Exchange Commission is suing Tesla CEO Elon Musk over his alleged "false and misleading" statements regarding a plan to take Tesla private last month, according to a report by Bloomberg. Critically, the full complaint wants Musk barred as an "officer and director" of the company.
The announcement reverberated through Wall Street and sent Tesla's stock diving by over 10 percent in after hours trading. On August 7, Musk tweeted that he was "considering taking Tesla private at $420. Funding secured." The company's stock soared to a record high in response. He later revealed that he was referring to a less-than-concrete buyout plan involving Saudi Arabia's sovereign wealth fund, which just recently dumped $1 billion into rival electric vehicle maker Lucid Motors.
Critics claimed it was an obvious case of stock manipulation, while Musk defended himself by saying he was trying to be transparent about the discussions he'd been having with the fund's managing director. Both the SEC and the Justice Department were said to be investigating by the end of August, and the lawsuit filed today in federal court shows that the government believes it has grounds to act against Musk and Tesla.
"Tesla and the board of directors are 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," a joint statement released by the company and its board reads.
Essentially, the government believes Musk lied—both directly and by omission, in some cases—about the nature of his funding discussions and the way any potential privatization would unfold. The full complaint lays out a convincing timeline that alleges a lot of misdirection and misinformation being willfully passed around, all of it revolving around Musk.
"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 filing reads. "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."
It's also got some incredible details, like Musk's admission that he did pick that $420 number "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.'" Then there's the rush of incredulous emails text messages that streamed into the CEO's office from reporters and Tesla executives alike after that first fateful tweet. "Was this [tweet] legit?" Tesla's head of investor relations wrote to Musk's chief of staff.
It's also revealed that Tesla's CFO, general counsel, and head of communications allegedly drafted Musk's explanatory blog post as uproar over his tweets grew. The complaint also details how two further blog posts "attributed to Musk," published August 13 and August 25, failed to clarify the situation from a legal standpoint even as the privatization plan was formally put on ice.
The key point in the government's claim is that investors who bought Tesla stock as the price skyrocketed in the wake of his "funding secured" tweet in turn lost money when the truth came out—a situation that was engineered entirely by Musk, the SEC alleges.
"By engaging in the conduct alleged in this Complaint, Musk violated, and unless restrained and enjoined will violate again, Section 10(b) of the Securities Exchange Act of 1934," the filing reads. Further down, after a list of financial and civil penalties the SEC is seeking to impose, lies the real problem for Musk: a request that the final judgment orders Musk to "be prohibited from acting as an officer or director."
The government has decided it no longer trusts Musk at the helm of Tesla. We reached out to Tesla, who sent us the following statement from Musk.
"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."