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S.E.C. Sues Elon Musk and Seeks to Ban Him From Running a Public Company

By NexChange
Financial Services

The Securities and Exchange Commission sued Elon Musk on Thursday for “false and misleading public statements and omissions” that harmed investors and “caused significant confusion and disruption in the market for Tesla’s stock.”

The S.E.C.’s lawsuit, which is the result of Musk’s infamous tweet expressing his desire to take Tesla private, seeks to bar Musk from serving as an executive or director of a publicly traded company. The suit was filed in a federal court in New York.

Musk tweeted on Aug. 7 that he was “considering taking Tesla private at $420. Funding secured.” He added that “Shareholders could either to (sic) sell at 420 or hold shares & go private.”

Musk later tweeted that day that “My hope is *all* current investors remain with Tesla even if we’re private. Would create special purpose fund enabling anyone to stay with Tesla.” He also tweeted that “investor support is confirmed” and that the only reason it was uncertain “is that it’s contigent on a shareholder vote.”

In its lawsuit, the S.E.C. accuses Musk of knowing “or was reckless in not knowing that each of these statement was false and/or misleading because he did not have an adequate basis in facts for his assertions.”

When he made these statements, Musk knew that he had never discussed a going-private transaction at $420 per share with any potential funding source, had done nothing to investigate whether it would be possible for all current investors to remain with Tesla as a private company via a “special purpose fund,” and had not confirmed support of Tesla’s investors for a potential going-private transaction. He also knew that he had not satisfied numerous additional contingencies, the resolution of which was highly uncertain, when he unequivocally declared, “Only reason why this is not certain is that it’s contingent on a shareholder vote.” Musk’s public statements and omissions created the misleading impression that taking Tesla private was subject only to Musk choosing to do so and a shareholder vote.
The company’s shares were halted after Musk sent his tweet on Aug. 7, but reopened 10 percent higher a little less than two hours after they were halted. Tesla’s board was reported to have been “totally blindsided” by Musk’s tweet, and is currently searching for a No. 2 executive to support Musk. (Although, if the S.E.C. gets its wish, the board may soon be searching for a No. 1 to replace Musk.)
Andrew Left, founder of Citron Research and a well-known short-seller, recently sued Musk and his car company for alleged “price manipulation.” The suit, filed in the United States District Court of Northern California and posted online, accuses Musk and Tesla of having “artificially manipulated the price of Tesla securities to damage the Company’s short-sellers, and in the process, damaged all purchasers of Tesla securities by issuing materially false and misleading information.”

When he was trying to explain what he meant in his tweet about having the funding secured to take Tesla private, Musk said he had met with reps from the Saudi Arabian sovereign wealth fund, which “has more than enough capital needed to execute on such a transaction.”

However, the New York Times later cast doubt on this strategy, talking to sources who indicated “the fund had taken none of the steps that such an ambitious transaction would entail, like preparing a term sheet or hiring a financial adviser to work on the deal.”

Tesla’s shares fell 10 percent in after-hours trading after news of the S.E.C.’s lawsuit broke.
Photo: YouTube

 

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