Elon Musk Sued By Security Exchange Commission For Misleading Tweet

Ann Santiago
September 30, 2018

The idea of running Tesla as a private company may be even more appealing today for Elon Musk than it was in early August, before he landed in hot water with investors and regulators.

At the time of writing, Tesla shares are trading at US$268.20 ($369.55), a significant drop from US$342.54 ($471.99) before this whole affair started.

Wall Street analysts have been growing more critical of Tesla in recent months, and there was a flurry of bearish notes on Friday.

The cost of insuring Tesla debt against default rose to its highest price ever on Thursday and the plummeting share price attracted new short sellers, who bet against the stock.

The relief being sought by the SEC could effectively end Musk's career, as they are asking he: disgorge, with prejudgment interest, any ill-gotten gains received as a result of the violations; pay civil penalties; and be prohibited from acting as an officer or director of any issuer that has a class of securities'.

It turns out that the price Elon Musk came up with to take Tesla Inc. private really was about weed, and that the embattled chief executive officer tweeted the figure to impress his girlfriend, the rapper Grimes.

The two sides could potentially still reach a settlement in coming weeks. "We have no edge on how a legal preceding will play out".

Musk had not discussed the $420 figure with any potential funding source before he broached the subject to Tesla's board in an August 2 email, the SEC said. That could be complicated after this lawsuit.

He added: "Having Elon Musk as CEO has undoubtedly made that easier in the past". He had not secured the funding, the SEC alleges.

However, Wall Street is concerned that potential charges against the company, a criminal probe and shareholder lawsuits could be in the works, analysts and securities law experts said.


In a statement to the business news channel, Musk said: "This unjustified action by the SEC leaves me deeply saddened and disappointed". Johnson believes Musk's ability to inspire investors with a vision of a brighter future has blinded them to the "horrendous" fundamentals at Tesla.

On Aug. 24, after news of the SEC probe had become known, Musk blogged that Tesla would remain public, citing investor resistance.

In April 2017, Tesla dethroned GM to become largest U.S. automaker by market cap.

"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 transaction, ' states the complainant in the case, which was submitted in the US District Court for the Southern District of NY. He carries an Underweight rating and price target of $195 a share.

There was evidence of "clear manipulation", he said on TD Ameritrade Network.

Tesla will be much more challenged to raise funds, private or public, with such a large uncertainty hanging in the air. The company has said Musk is an engaged and thoughtful leader who remains more than capable for the job.

"The fundamentals of Tesla have been horrendous, I don't think anybody would deny that".

Musk has uncharacteristically been quiet on Twitter since his last tweet on Wednesday.

Bill Smith of Blaine Capital, which is shorting Tesla shares, said: 'Musk should be gone, he should have gone a long time ago. "We've counted over 113 mistruths that he's stated, and you had and over 60 executives leave in 2018 alone". Tesla's board backed Musk, saying that it is "fully confident" in him.

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