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

● 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