The Securities and Exchange Commission has charged Tesla’s billionaire CEO and chairman, Elon Musk, with securities fraud over a series of controversial tweets focusing on the electric-car company’s future financial status.
If the SEC is fully successful in arguing its claims, Musk could be barred from serving as an officer or director of Tesla or any other publicly traded company.
The complaint in federal court focuses on what the SEC calls “false and misleading tweets” about a potential transaction to buy up Tesla’s publicly traded shares at a premium price of $420 and take the company private.
“Funding secured,” Musk said in Aug. 7’s most controversial tweet.
Musk’s comments on Twitter boosted Tesla’s share price to nearly $380, but over the weeks that followed, Musk acknowledged that the funding had not been secured (although he continued to assert that it could have been). By the end of August, Musk and Tesla’s board dropped the go-private idea.
Tesla’s stock price sank to a low of $263 on Sept. 7, largely due to reports about the SEC investigation. The price had rebounded to $307 by the end of today’s trading session, in part due to Tesla’s vigorous effort to deliver Model 3 cars as its financial quarter comes to a close. However, after the SEC issued a statement about its allegations, the price plunged to around $270 in after-hours trading.
The SEC alleges that Musk knew when he floated the go-private plan that the potential transaction was uncertain and subject to numerous contingencies.
In its complaint, filed in Manhattan federal district court, the SEC alleges that Musk violated anti-fraud provisions of the federal securities laws, and seeks a permanent injunction, disgorgement, civil penalties and a bar prohibiting Musk from serving as an officer or director of a public company.
That would be a heavy blow for a company so closely identified with Musk’s persona. In addition to his post at Tesla, Musk serves as the CEO and chief designer of SpaceX as well as the founder of the Boring Company, a tunneling venture; and a co-founder of Neuralink, a venture focusing on brain-computer interfaces. Tesla is the only company that’s publicly traded.
“Corporate officers hold positions of trust in our markets and have important responsibilities to shareholders,” Steven Peikin, co-director of the SEC’s Enforcement Division, said in a news release. “An officer’s celebrity status or reputation as a technological innovator does not give license to take those responsibilities lightly.”
Stephanie Avakian, the division’s other co-director, said that claims made on Twitter must be taken as seriously as claims made in more traditional financial forums.
“Taking care to provide truthful and accurate information is among a CEO’s most critical obligations,” she said. “That standard applies with equal force when the communications are made via social media or another non-traditional form.”
The SEC says its investigation is continuing. We’ve reached out to Tesla for comment and will pass along anything we hear back.
Update for 11:50 p.m. PT Sept. 27: Tesla and its board of directors issued this statement reacting to the SEC’s action:
“Tesla and the board of directors are fully confident in Elon, his integrity, and his leadership of the company, which has resulted in the most successful U.S. auto company in over a century. Our focus remains on the continued ramp of Model 3 production and delivering for our customers, shareholders and employees.”