The federal government filed a fraud claim against Elon Musk on Thursday, alleging the Tesla founder made false and misleading statements on Twitter when he claimed to have secured financial backing to take the electric carmaker private.
Musk either knew the statement was inaccurate or acted recklessly in making it, the Securities and Exchange Commission said in a lawsuit filed in U.S. District Court in Manhattan. The Department of Justice is also investigating the tweet.
The case is sure to rattle investors, Tesla board members and others who are concerned that Musk’s personal behavior is overshadowing his work at the company. It could also prompt calls for Musk to step down as head of the carmaker he founded in 2003. The SEC is seeking to bar Musk from serving as a corporate officer at any public company.
Musk called the action “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 its lawsuit, the SEC says Musk neither “discussed, much less confirmed” any details with a potential financial backer when he claimed to have “funding secured” to take Tesla private at a price of $420 per share — a substantial premium to the company’s stock-market value at the time.
Tesla’s stock jumped nearly 12 percent after the tweet was posted in the middle of the day on Aug. 7. The majority of financial announcements are made via press release, with significantly more detail, either before or after trading hours.
The SEC also said that Musk “had not satisfied numerous additional contingencies” when the 47-year-old entrepreneur claimed the only remaining hurdle was a shareholder vote on the proposal.
“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 agency wrote.
In a July meeting, Musk and representatives for Saudi Arabia’s sovereign wealth fund discussed taking the company private, but the conversation lacked “even the most fundamental terms of a proposing going-private transaction,” the SEC said. No dollar amounts or the availability of liquid capital in the Saudi fund were discussed, nor did the two parties talk about any potential regulatory hurdles for the move, according to the agency.
Musk didn’t communicate with the fund again until three days after his tweet on Aug. 7, the SEC wrote.
“Musk’s statements were premised on a long series of baseless assumptions and were contrary to facts that Musk knew,” the agency argued.
While Musk e-mailed Tesla’s board of directors on Aug. 2 with his rationale for taking the company private, no board members were aware of Musk’s intention to tweet days later that he had secured funding, the agency said. Tesla’s head of investor relations even texted Musk’s chief of staff to ask “Was this text legit?” the SEC said.
Musk also told the board that he chose the price of $420 a share because his girlfriend recently explained the number’s significance as a code for smoking cannabis. A former top official at the U.S. Drug Enforcement Agency has asked Attorney General Jeff Sessions to investigate Musk’s smoking weed on a podcast with U.S. comedian Joe Rogan earlier this year.
Tesla shares dropped 3.92 percent to $295.46 in after-hours trading in New York on Thursday.
The SEC moved quickly in bringing charges against Musk, filing a case just a few weeks after the initial tweet.
“We believe our actions have the most impact when they are brought most closely in time to the events that bring them forth,” Steven Peikin, co-director of enforcement at the SEC, said at a news conference. “We conducted a swift investigation here, the investigation was complete and it was time to make a charging decision.”
