Sunday Times

Mav­er­ick Musk faces US reg­u­la­tors’ wrath for go-pri­vate tweet

- By MATT ROBIN­SON and BEN BAIN Business · White-collar Crime · Crime · Elon Musk · U.S. Securities and Exchange Commission · United States of America · Tesla Motors · Nikola Tesla · New York City · Washington · California · Grimes

● Elon Musk is in jeop­ardy of los­ing con­trol over the elec­tric-car com­pany he founded, with the US Se­cu­ri­ties and Ex­change Com­mis­sion (SEC) su­ing the bil­lion­aire for his ex­plo­sive Au­gust tweet about tak­ing Tesla Inc pri­vate.

Mov­ing with unusual speed, the SEC said in a law­suit filed in New York that Musk mis­led in­vestors by claim­ing falsely that he had lined up fund­ing for the trans­ac­tion. The SEC said it was seek­ing un­spec­i­fied mon­e­tary penal­ties and, more im­por­tant, would re­quest that a judge bars Musk from serv­ing as an of­fi­cer or di­rec­tor of a pub­lic com­pany.

For in­vestors al­ready wor­ried about the com­pany’s abil­ity to pro­duce cars fast enough to start gen­er­at­ing prof­its, the prospect of los­ing Musk — a bil­lion­aire and se­rial en­tre­pre­neur whose name is syn­ony­mous with Tesla — was un­nerv­ing. They dumped the stock, driv­ing it down 13% in af­ter-mar­ket trad­ing on Thurs­day to be­low $270 and deep­en­ing a sell-off that be­gan as the go-pri­vate gam­bit quickly un­rav­elled in Au­gust. The shares were down 12% in early trade in New York on Fri­day.

“Musk’s state­ments were false and mis­lead­ing,” Stephanie Avakian, co-di­rec­tor of the SEC’s en­force­ment di­vi­sion, said at a press con­fer­ence in Wash­ing­ton. “They lacked any ba­sis in fact.”

In the law­suit and at the news con­fer­ence, the SEC of­fi­cers went to great lengths to spell out the Tesla CEO’s care­less­ness and his er­ratic be­hav­iour — from threat­en­ing to “burn” short sellers who tar­geted Tesla stock to seek­ing to amuse his girl­friend, the pop singer Grimes, by weav­ing in a “mar­i­juana cul­ture” ref­er­ence to his go-pri­vate bid. (He set a buy­out price of $420, a num­ber he landed on in part be­cause it is code for mar­i­juana con­sump­tion.)

Musk called the law­suit “un­jus­ti­fied” and said it left him “deeply sad­dened and dis­ap­pointed”.

“I have al­ways taken ac­tion in the best in­ter­ests of truth, trans­parency and in­vestors,” he said in a state­ment. “In­tegrity is the most im­por­tant value in my life and the facts will show I never com­pro­mised this in any way.”

In a state­ment re­leased late on Thurs­day, Tesla and the Cal­i­for­nia-based com­pany’s board said they were fully con­fi­dent in Musk, his in­tegrity and lead­er­ship. Tesla was not named in the SEC suit.

The SEC had crafted a set­tle­ment with Musk that it was pre­par­ing to file on Thurs­day, the Wall Street Jour­nal re­ported, cit­ing uniden­ti­fied peo­ple fa­mil­iar with the mat­ter. Musk’s lawyers called SEC lawyers to say they were no longer in­ter­ested in pro­ceed­ing with the agree­ment, it said.

The con­tro­versy be­gan when Musk shot off a tweet on Au­gust 7 say­ing he was con­sid­er­ing tak­ing the com­pany pri­vate and had se­cured fund­ing for a deal. Tesla shares soared im­me­di­ately af­ter­ward. “In truth and in fact, Musk had not even dis­cussed, much less con­firmed, key deal terms, in­clud­ing price, with any po­ten­tial fund­ing source,” the SEC said in the com­plaint.

Even be­fore the go-pri­vate tweet, the SEC was in­ves­ti­gat­ing is­sues at Tesla in­clud­ing its car-sales pro­jec­tions. In ad­di­tion to the SEC suit, the jus­tice de­part­ment is also look­ing into whether Musk mis­led in­vestors, Bloomberg News has re­ported.

While the fil­ing of the law­suit was not nec­es­sar­ily sur­pris­ing, the speed with which it was put to­gether shocked many long-time watch­ers of the SEC, an agency known for be­ing much more de­lib­er­ate in its ac­tions. Steve Peikin, the SEC’s other co-en­force­ment di­rec­tor, said the agency felt that the ef­fect would be great­est if the case was brought soon af­ter the al­leged mis­con­duct.

The re­quest to bar Musk from serv­ing as a cor­po­rate of­fi­cer — which would ap­ply to all pub­licly traded com­pa­nies — could force him to try to reach a set­tle­ment quickly. Oth­er­wise, he risks leav­ing in­vestors won­der­ing about the fate of a com­pany whose im­age has be­come in­ter­twined with that of its mav­er­ick CEO. “It’s unusual for a case of this sig­nif­i­cance to move this quickly, in par­tic­u­lar when you’ve got a high-pro­file in­di­vid­ual,” said Robert Long, a for­mer SEC en­force­ment at­tor­ney now in pri­vate prac­tice. — Bloomberg

Musk’s state­ments were false and mis­lead­ing Stephanie Avakian US Se­cu­ri­ties and Ex­change Com­mis­sion

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