Elon Musk’s recent bombshell tweets about his wish to take Tesla private have caught the eye of US stock regulators.
Tesla CEO Elon Musk generated a buzz on 7 August when he tweeted he was considering taking the auto manufacturer private.
The tweet came in the wake of rumours that a Saudi Arabian sovereign wealth fund had invested in the company. Musk was also reported to have held talks with SoftBank about a potential investment.
The SEC takes notice
The tweet about plans to apparently take the company private at $420 per share caught the attention of the US Securities and Exchange Commission (SEC). The SEC has since contacted Tesla over the tweets, according to The Wall Street Journal.
Normally, companies halt trading of their stock before making major announcements in order to avoid lawsuits from shareholders complaining they traded on false or misleading information.
Companies also generally have a detailed proposal in place for such plans before making drastic changes.
While Musk is permitted use social media in discussing his plans for Tesla, many say the Twitter announcement is unorthodox.
Is the funding there?
The issue hinges on whether or not Musk has already secured the funding as he claimed in the tweet.
Six directors on Tesla’s nine-member board publicly acknowledged on 8 August that Musk approached them last week about pursuing the financing needed for a buyout.
In his note to Tesla employees, Musk said: “A final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best.”
Tesla buyout could cause issues
According to CBS San Francisco, if the buyout is unsuccessful Musk and Tesla could face class-action lawsuits from shareholders and more legal woes from the SEC. Market manipulation accusations could come down the line.
Tom Gorman, a partner at law firm Dorsey and Whitney, said: “He is not prohibited from making that statement as long as it is truthful and not manipulative.
“You are talking about billions of dollars of funding. He said he has it. If he has it, he has it. If he doesn’t that is a problem, because then he would be making at minimum a false statement.
“That could have an obvious impact he would certainly be aware of.”
Musk tweeted on 7 August that investor support was confirmed but “not certain” as it is “contingent on a shareholder vote”.