Tesla CEO Elon Musk made “false and misleading statements” in August tweets about taking the company private for $420 per share—and now the company’s worst nightmare has come true: The SEC is suing him and seeking to bar him from holding the position of CEO of a public company.
According to the SEC, when Musk made his claims, he knowingly misled the public by tweeting to 22 million followers.
And it wasn’t just one tweet, either. After he told his followers that he was taking Tesla private for $420 a share, he kept the farce going, saying that “investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote”.
Now, he’s being sued by the SEC for fraud, and it’s leading to the big question: Will he be replaced?
Share prices started plunging upon the news, and lost over 12 percent, bringing its $307.52 per share at market close down to $270.10.
(Click to enlarge)
In early August, Tesla shares jumped on news that Saudi Arabia’s sovereign wealth fund, the Pension Investment Fund (PIF), had acquired a nearly 5-percent stake in Tesla.
Days later, Musk was telling everyone that the Saudis would be helping him take Tesla private. In fact, Musk said he had held a July 31st meeting with the Saudis “with no question that a deal with the Saudi sovereign fund could be closed, and that it was just a matter of getting the process moving.” Related: Secretive Crypto Miner Opens Its Books Ahead Of IPO
The Saudis wouldn’t comment on the statement, and by the end of August, Musk was conceding that Tesla would not go private. And then the Saudis threw a $1-billion investment into Lucid, a start-up that could rival Tesla.
“Elon communicated to the board that after having done this work and considered all factors, he believes the better path is to no longer pursue a transaction for taking Tesla private,” the directors said in a rather vague statement afterwards.
And they expressed their continued support for Musk. But with a lawsuit now on their hands—and from the SEC, no less—they might not be quite as supportive.
Fast-forward to after-hours trading and a loss of nearly 12 percent …
The lawsuit alleges that Musk statements were "reckless", and says it will seek out undetermined civil penalties against Musk.
“Neither celebrity status nor a reputation as a technological innovator provide an exception from federal securities laws,” said Steven Peikin, co-director of the SEC’s Enforcement Division.
“Musk’s statements that funding was ‘secured’ and investor support was ‘confirmed’ were false and misleading because, in reality, Musk had no ‘secured’ or ‘confirmed’ commitment from any source to provide any amount of funding,” the complaint continues. “In addition, he had never even discussed taking Tesla private at a price of $420 per share with the Fund [a reference to the Saudi Arabia Sovereign Wealth Fund which had bought a stake in Tesla].”
And it gets worse because the Justice Department is also reportedly looking at criminal charges against Musk, according to the Wall Street Journal.
Speaking to the BBC, Stanford Law School professor and former SEC commission Joseph Grundfest said: “I think the important issue [for Tesla] will be to fashion a remedy that simultaneously disciplines Mr Musk, but without destroying his value to Tesla’s shareholders.”
At most, he could be demoted. At least, he should be assigned a babysitter to monitor his twitter fests (and he’s not the only one).
"You could imagine, in one extreme, he becomes chief product officer and someone takes over as CEO. Or, he gets what I call a 'Twitter nanny', where he can’t communicate without first clearing it with a responsible adult,” Grundfest said.
The bigger problem for the public is that Tesla is iconic. It’s got ‘fans’ and ‘true believers’—all of whom will now have to decide whether they love Tesla because of Musk or because of the very cool technology.
By Tom Kool for Oilprice.com
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