Musk in hot water for tweeting that he planned to take Tesla private, using the phrase ‘funding secured’.
The powerful US Securities and Exchanges Commission (SEC), the watchdog overseeing publicly listed companies, has charged Tesla CEO and co-founder Elon Musk with alleged fraud.
The SEC alleges that Musk issued “false and misleading” statements and failed to properly notify regulators of company events such as new funding agreements.
‘Neither celebrity status nor reputation as a technological innovator provide an exemption from the federal securities laws’
– STEPHANIE AVAKIAN
The charges come at a time when tweets by Musk and his activities in public, including smoking weed live on a video blog, can be best described as erratic.
The SEC’s issues with Musk stem back to tweets he published in August saying he was considering taking Tesla private at a price of $420, a 20pc premium, using the phrase “funding secured”.
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
The markets responded favourably, with Tesla stock surging by $15 to $370 per share. At a share price of $420, Tesla’s total stock would have been worth more than $70bn.
SEC revs up charges against Musk
The SEC has acted seemingly faster than a speeding Tesla Model S and, with uncharacteristic velocity, has hurled a lawsuit against Musk. Not only that, there are fears that the company might be sued as well.
“A chairman and CEO of a public company has important responsibilities to shareholders,” said Stephanie Avakian, co-director of the SEC’s division of enforcement.
“Those responsibilities include the need to be scrupulous and careful about the truth and accuracy of statements made to the investing public, whether those statements are made in traditional forms such as a press release or an earnings call, or through less formal methods such as Twitter or other social media.
“Neither celebrity status nor reputation as a technological innovator provide an exemption from the federal securities laws,” she said.
In response, Musk has said he is “saddened and disappointed” by the SEC’s actions against him.
In a statement to US news channel CNBC, he said: “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.”
Is this the end of the road for Musk as CEO of Tesla?
What will happen next will be hard to determine but there are real concerns that the lawsuit and Musk’s recent high-profile behaviour might be too hot to handle for Tesla shareholders, making his position as CEO untenable.
The SEC is seeking monetary penalties and wants to see a judge bar Musk from serving as an officer or director of a public company.
Investors have already voted with their feet, with Tesla’s stock nose-diving 13pc in after-market trading to below $270, the opposite direction of the way the stock went when Musk tweeted the go-private idea in August.
Tesla has endured a rough 2018 so far, with investor sentiment riding on whether the company would reach production goals. At the official launch of the Model 3 last year, Musk said that Tesla would build half-a-million cars in 2018, a fivefold increase from 2017. Musk had promised investors that Tesla would make 5,000 Model 3s per week. What followed was a litany of teething problems before April, when Tesla hit a production run high of 2,270 Model 3 vehicles per week. In total, 53,339 vehicles were built in Q2 2018, a 55pc increase from the previous quarter.
Could the SEC probe and the fall in Tesla share value be the end of the road for Musk and Tesla?