SEC Sues Elon Musk for Fraud

Tesla Chief Executive Elon Musk has been sued for fraud by the Securities and Exchange Commission, according to a court filing.

The lawsuit, filed in the Manhattan District Court, is related to tweets Musk published in August that said he had “funding secured” for a plan to take Tesla private.

According to the filing, the SEC says Musk made “a series of false and misleading statements.”

“Musk made his false and misleading public statements about taking Tesla private using his mobile phone in the middle of the active trading day,” according the the lawsuit. “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. He also did not inform Nasdaq that he intended to make this public announcement, as Nasdaq rules required.”

Musk said a Saudi Arabian sovereign wealth fund would back a plan to take the electric carmaker private at a price of $420 per share.

“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,” the lawsuit says. “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.'”

Musk eventually abandoned the plan.

“I knew the process of going private would be challenging, but it’s clear that it would be even more time-consuming and distracting than initially anticipated,” Musk wrote in the letter posted to the company’s website. “This is a problem because we absolutely must stay focused on ramping Model 3 and becoming profitable. We will not achieve our mission of advancing sustainable energy unless we are also financially sustainable.”

Tesla’s (TSLA) stock dropped more than 11% in after-hours trading Thursday.

UPDATE: Musk issued a statement on the SEC’s suit:

“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.”

Tesla and its board of directors also issued a statement:

“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. Our focus remains on the continued ramp of Model 3 production and delivering for our customers, shareholders and employees.”

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