Criminal probe into tweet could open Pandora’s box at Tesla
With access to internal documents, investigators ‘follow threads wherever they lead’
TOM SCHOENBERG, GREG FARRELL AND MATT ROBINSON All it took to draw the U.S. Justice Department into investigating Tesla Inc. was a single tweet by chair Elon Musk. But now that prosecutors have a toehold, they can dig in to look for other signs of misconduct at the electric-car maker.
The investigation is in its very early stages and where it leads is anyone’s guess. Many securities fraud probes over the years have started with a bang like the one that knocked as much as 6.6 per cent off Tesla’s shares with Bloomberg’s report of the probe on Tuesday.
Some of those are flash news reports that trickle off without charges. At the other extreme are companies like The- ranos Inc., which pumped up its valuation with what the government said were false promises, leading to charges against founder Elizabeth Holmes and another senior executive.
“Criminal investigations are never good if you’re a public company because they open up a Pandora’s box and prosecutors will follow threads wherever they lead,” said Paul Pelletier, a former Justice Department prosecutor.
Tesla said it’s co-operating with the Justice Department, noting that it received queries but no subpoena.
The initial scrutiny surrounds Musk’s tweet on Aug. 7 that he had money lined up to take the company private. Shares jumped.
Later, he and his board said there was no formal proposal for the funding and they abandoned the plan.
The Securities and Exchange Commission quickly opened a civil investigation into the tweet and issued a subpoena for information, people familiar with the matter told Bloomberg. That was followed by the Justice Department probe.
Neither the SEC nor federal prosecutors have accused Musk of any wrongdoing.
To prove criminal securities fraud, prosecutors would have to show not only that Musk’s statements were false, but that they were made wilfully. That would require establishing that Musk purposely planned to inappropriately drive the shares higher or prevent them from going lower.
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