The Securities and Exchange Commission filed a lawsuit on Thursday against Tesla CEO Elon Musk for alleged securities fraud, calling his previous tweets about having the “funding secured” to take Tesla private a “series of false and misleading statements.”
In a 23-page complaint filed in U.S. District Court in New York on Thursday, the SEC characterized Musk’s Aug. 7 statement as false and said: “Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source.”
“We allege that Musk’s statements were false and misleading because they lacked any basis in fact,” Stephanie Avakian, co-director of the SEC’s Enforcement Division, said in a press conference Thursday evening.
Musk is also facing a criminal probe by the U.S. Department of Justice over his statements, after it became evident that no deal had been arranged. Tesla abandoned the plan not even three weeks later.
Musk slammed the lawsuit in a statement issued following the SEC’s press conference.
“This unjustified action by the SEC leaves me deeply saddened and disappointed,” Musk said. “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.”
The agency’s case poses serious ramifications for the automaker, as it’s seeking to bar Musk from operating Tesla as CEO or director. Tesla’s stock price is, in a way, tied to the whims of Musk and his position as the all-electric automaker’s top-ranked employee.
The SEC highlighted statements Musk made after the initial tweet, also calling them “materially false and misleading,” including his claim that “investor support is confirmed.”
“Only reason why this is not certain is that it’s contingent on a shareholder vote,” Musk said at the time.
The SEC asserts that 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 agency’s lawsuit says.
As anyone who has followed along with this strange saga to-date knows, Tesla’s stock immediately shot up in response to Musk’s tweet, spurring the SEC to launch an investigation and the complaint filed Thursday.
“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,” the agency claims.
Several investors have since filed a lawsuit against the automaker, with claims that mirror the SEC’s complaint.
The agency also went so far as to allege that Musk’s price-point of $420 was nothing more than a literal weed joke.
“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 says.
Musk went on, in an email to Tesla’s board of directors, that the price of $420 was in jest, according to the SEC:
“This calculation resulted in a price of $419, and Musk stated that 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.’”
Musk had claimed in a later blog post that he’d walked away from a meeting in July with representatives of the Saudi Arabia sovereign wealth fund convinced it could fund the transaction on its own.
But the SEC said the meeting “lacked discussion of even the most fundamental terms of a proposed going-private transaction,” and, in the following days, countless uncertainties remained—for example, no specific proposal was provided to the board, nor did Musk discuss the price of $420 with any potential funding source.
“These uncertainties notwithstanding, on Tuesday, August 7, 2018, Musk published a series of statements about a transaction to take Tesla private using his personal Twitter account,” the SEC says. “Musk did not consult with Tesla’s Board of Directors, any other Tesla employees, or any outside advisors about these tweets before publishing them.”
Beyond the effort to bar Musk from acting as an officer or director of any public company, the SEC is asking the court to find that Musk violated securities laws and pay back any “ill-gotten gains received as a result” of his tweet.
Steven Peikin, co-director of the SEC’s Enforcement Division, said in a statement that corporate officers hold positions of trust and have an important responsibility to shareholders.
“An officer’s celebrity status or reputation as a technological innovator does not give license to take those responsibilities lightly,” Peikin said.
A copy of the complaint can be viewed here: