Tesla Inc. TSLA investors experienced a very unorthodox announcement on Aug. 7, when CEO Elon Musk tweeted he considered taking the company private, with “funding secured.”
After weeks of speculation, the Securities and Exchange Commission is now taking Musk to task.
What Happened
The SEC officially opened a case against Musk, according to a docket entry in the Manhattan federal court.
According to the SEC filing, the misleading statements made by the CEO falsely indicated it was certain that he could, in fact, take Tesla private at a specified purchase price. This purchase price reflected a premium over Tesla’s stock share price at the time. Additionally, Musk had not discussed, nor confirmed key deal terms with any funding source.
“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 docket said.
“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.”
What's Next
In an emailed statement, 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.”
An SEC lawsuit threatens Musk’s continued leadership, while adding extra financial pressure to the company.
As Vertical Group Gordon Johnson outlined in a recent note, committees and investors may begin to question why they're undertaking so much risk in a CEO under criminal investigation.
The SEC finds that Musk violated provisions of federal laws which should permanently restrain him from engaging in conduct in violation of the Exchange Act. In addition, the SEC orders Musk to pay civil penalties and disgorge any ill-obtained gains received through his tweets.
Tesla the company was not named in the suit, although sources close to the company told CNBC Tesla was also expecting to be sued.
Tesla's stock was down more than 11 percent after market close to $271.31 per share.
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