Elon Musk sued by SEC over ‘funding secured’ tweet

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The Securities and Exchange Commission has sued Tesla CEO Elon Musk for securities fraud after his aborted attempt to take the company private earlier this summer. The complaint, filed in federal court in the Southern District of New York, shows that the SEC is seeking to ban Musk from being able to hold officer or director positions at publicly-traded companies, as well as any other damages the court feels are appropriate.

Musk originally announced that he was considering an effort to take Tesla private in a tweet on August 7th, adding that he had “funding secured” to take on such an effort. In subsequent tweets, Musk made it seem that all it would take to de-list the company from the stock market, then, was the approval of its shareholders. Musk later claimed that Saudi Arabia’s sovereign wealth fund was in talks with Tesla to potentially fund the effort, but eventually abandoned the idea on August 24th. The SEC subpoenaed Tesla just one week after Musk’s original tweet.

“In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source,” prosecutors write in the complaint. Specifically, they say Musk’s “funding secured” tweet was “false and misleading.” Prosecutors say that Musk’s subsequent statements were false and misleading, too.

“Musk knew or was reckless in not knowing that each of these statements was false and/or misleading because he did not have an adequate basis in fact for his assertions,” they write. “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.”

Prosecutors note that Musk’s tweets on August 7th sent Tesla’s stock price up, creating immediate value for investors, but that the resulting chaos in the following weeks ultimately did those shareholders harm.

The SEC is a civil agency, and typically doles out fines to companies and executives who are involved in rule violations. But the commission can remove a person’s ability to serve as director or officer of publicly-traded companies, a route it recently took with Theranos CEO Elizabeth Holmes. The Justice Department has reportedly also opened a criminal investigation into Musk’s tweets about the attempt to take Tesla private.

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