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September 28, 2018

SEC sues Tesla CEO Elon Musk for securities fraud

by John_A

Tesla CEO Elon Musk’s tweeting about taking the company private, with “funding secured,” took investors and the company by surprise. On Thursday, September 27, the Securities and Exchange Commission (SEC) filed suit against Musk, charging him with securities fraud, according to court documents.

The SEC alleges that Musk made “false and misleading” statements on Twitter when he stated, “Am considering taking Tesla private at $400. Funding secured.”

Musk followed up the original tweet, saying “Shareholders could either to sell at 420 or hold shares & go private.”

Shareholders could either to sell at 420 or hold shares & go private

— Elon Musk (@elonmusk) August 7, 2018

The SEC also alleged Musk did not properly inform securities regulators of what were considered material events.

Musk stated later in the month that when he proposed the $420 per share price, he was confident the funding he referred to would materialize at that price after prior discussions with Saudi Arabia’s Public Invest Fund, according to CNBC.

The SEC’s complaint alleged:

Musk knew that he (1) had not agreed upon any terms for a going-private transaction with the Fund or any other funding source; (2) had no further substantive communications with representatives of the Fund beyond their 30 to 45 minute meeting on July 31; (3) had never discussed a going-private transaction at a share price of $420 with any potential funding source; (4) had not contacted any additional potential strategic investors to assess their interest in participating in a going-private transaction; (5) had not contacted existing Tesla shareholders to assess their interest in remaining invested in Tesla as a private company; (6) had not formally retained any legal or financial advisors to assist with a going-private transaction; (7) had not determined whether retail investors could remain invested in Tesla as a private company; (8) had not determined whether there were restrictions on illiquid holdings by Tesla’s institutional investors; and (9) had not determined what regulatory approvals would be required or whether they could be satisfied.

Other Tesla executives, including the Tesla head of Investor Relations, were not informed about Musk’s plan to take the company private or make a statement to that effect.

Tesla was not named in the SEC lawsuit, although CNBC reported that sources close to Tesla told the news outlet that the company expected to be sued.

If Musk is found guilty of the fraud charges, the SEC wants to bar him from serving any publicly traded company as an officer or director, CNBC reports.

Editors’ Recommendations

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