Tesla’s CEO Elon Musk is Being Sued By the SEC for Fraud

Tesla’s CEO Elon Musk is facing another lawsuit, and this time it’s with the Securities Exchange Commission for fraud.

The 47-year-old leader of the electric vehicle maker has been accused by regulators of misleading investors in Tesla with his tweet in August about considering to take the company private and having funding secured.

According to Musk, he thought he had a verbal agreement with a lender but the SEC alleges that Mark issued “false and misleading” statements. The agency also accused Musk of failing to properly notify regulators of
material company events.

If found guilty, the SEC wants to bar Musk from being able to serve as an officer or director of a publicly traded company.

“A chairman and CEO of a public company has important responsibilities to shareholders,” Stephanie Avakian, co-director of the SEC’s division of enforcement, stated.

“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.

Musk has argued that he “never compromised” his integrity and calls the SEC’s allegations “unjustified.”
He stated, “This unjustified action by the SEC leaves me deeply saddened and disappointed. 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.”

Musk had previously said to the New York Times that his $420 take-private price was done by rounding $1 up from what would have been a 20 percent upside at the time.

“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,” the SEC alleged in its suit.
”
This calculation resulted in a price of $419, and Musk stated that he rounded the price up to $420 because he had recently learned about the number’s significance in marijuana culture and thought his girlfriend ‘would find it funny, which admittedly is not a great reason to pick a price.'”

The SEC’s complaint reads:
M
usk 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.

Disclaimer: We have no position in Tesla Inc. (NASDAQ: TSLA) and have not been compensated for this article.