SEC sues Elon Musk, seeks removal from Tesla as CEO

The SEC has filed a lawsuit against Elon Musk for securities fraud after the Tesla CEO tweeted he could take Tesla private at $420 per share and that he had “funding secured” for such a decision.

“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,” the SEC said in a complaint filed in Manhattan federal court Thursday. “Musk’s false and misleading public statements and omissions caused significant confusion and disruption in the market for Tesla’s stock and resulting harm to investors.”

The SEC requests that Musk “be prohibited from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act.”

Shares of Tesla plunged more than 13 percent in late trading. 

“This unjustified action by the SEC leaves me deeply saddened and disappointed,” Musk told Techhnews. “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.”

The first report that the SEC was looking into Musk’s tweets about taking Tesla private came in early August. After Musk said “funding secured” in a tweet that surprised investors, there was confusion about which entities were set to supply funding. After 18 days of blog posts from Tesla’s board and reported subpoenas, Musk backtracked, saying the electric-car company will remain public for the time being.

On Sept. 18, Bloomberg reported Tesla was also under Justice Department investigation. Tesla confirmed that the DOJ asked the company for documents and that it was complying with the request.

“Neither celebrity status nor a reputation as a technological innovator provide an exemption from the federal securities laws,” Stephanie Avakian, co-director of the SEC’s Enforcement Division, told reporters in a press conference Thursday. 

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SEC sues Elon Musk for securities fraud over misleading…


The SEC complaint says that according to Musk, the $420 price per share was calculated “based on a 20% premium over that day’s closing share price because he thought 20% was a ‘standard premium’ in going-private transactions.” 

That calculation led to 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.'” In popular culture, 420 refers to smoking pot in the afternoon.

The SEC says in its complaint that Musk violated Section 10(b) of the Securities Exchange Act of 1934, and that they feared he would continue to make such problematic statements. 

“Musk knew or was reckless in not knowing that his August 7 statements were false and misleading,” the SEC notes in the complaint.

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You can read the entire SEC court filing below.

Full SEC Complaint Against Elon Musk for alleged securities fraud by jonathan_skillings on Scribd

First published Sept. 27 at 1:30 p.m. PT. 
Update, 2:34 p.m.: Adds information from SEC press conference and Musk’s statement to Recode. 
Update: 3:05 p.m.: Adds more information from complaint.
Update, 3:14 p.m.: Adds Musk’s statement to Techhnews.

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