The SEC has accused Tesla (TSLA) CEO Elon Musk of fraud for sending out a tweet last month that said he was considering taking Tesla private at $420 per share and had secured funding to do so.
The stock closed the day at $307.52 and had fallen 10% to $276 at 4:43 p.m. in after-hours following the reports about the charges.
“In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential finding source,” the suit says. The suit was filed in the Federal District Court in Manhattan. The SEC wants to bar Musk from being a director or officer of any publicly traded company. The agency filed suit just seven weeks after Musk’s initial Tweet.
Tesla has noted in the “risk factors” section of its financial filings that “We are highly dependent on the services of Elon Musk, our Chief Executive Officer, Chairman of our Board of Directors and largest stockholder.” Tesla has also confirmed that it has provided documents to the Justice Department, raising the possibility that he could face criminal charges.
“This unjustified action by the SEC leaves me deeply saddened and disappointed,” Musk said in a statement. “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 suit details the unorthodox way (to say the very least) in which the “go-private” proposal was launched, including how Musk came up with the price.
“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 suit 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 sent the initial tweet, which said he was “considering taking Tesla private a $420. Funding secured” on August 7. Shares popped on the news, rising 11% by the end of the day, the SEC noted. The SEC says Tesla CFO Deepak Ahuja then texted Musk 35 minutes after the Tweet, offering to write a press release about Musk’s decision to mull taking the company private—the kind of thing that would normally happen well before a decision of this magnitude was announced to the public.
“Musk responded, ‘Yeah, that would be great,’” the suit says. “Tesla’s Chief Financial Officer then replied, ‘Working on it. Will send you shortly.’”
The SEC also cited other Musk tweets, including a May 4 tweet connected to a Barron’s story that had referenced trouble ahead for short-sellers. Musk predicted the “short burn of the century.”
On August 24, Tesla announced it would not become a private company as Musk said it would be too “time-consuming and distracting.” Tesla didn’t immediately respond to requests for comment Thursday.
Write to Avi Salzman at avi.salzman@barrons.com
