The Securities and Exchange Commission accused Tesla CEO Elon Musk of securities fraud in a lawsuit charging him with lying he had “funding secured” to take the electric car company private.
Despite his tweets — made during trading hours on Aug. 7 — Musk “had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source,” the SEC alleged in a civil complaint filed in federal court in New York City.
The SEC’s lawsuit pursues financial penalties from Musk and seeks to prevent him from leading a public company, which would require him to relinquish his post at Tesla.
“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 alleged in its complaint.
The charges focus on a series of tweets in which Musk told his approximately 22 million Twitter followers that he was thinking about a multi-billion dollar transaction that would take Tesla private at $420 per share.
“We allege that Musk’s statements were false and misleading because they lacked any basis in fact,” said Stephanie Avakian, co-director of the SEC’s Division of Enforcement, at a press conference Thursday.
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
During the next three hours, the SEC said Musk tweeted his hope that current Tesla investors would remain with the company even if it became private, said investors could sell at $420 or continue to hold their shares, and then added that investor support had been confirmed.
“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 complaint alleged.
Between the time of Musk’s first tweet and the close of trading on August 7, Tesla shares gained more than 6 percent in value on significantly increased volume, the complaint said.
Citing the market reaction, the complaint said Musk’s alleged false and misleading statements “caused significant confusion and disruption in the market for Tesla’s stock and resulting harm to investors.”
Tesla and Musk did not immediately respond to a request for comment on the SEC allegations.
The SEC scheduled a news conference later Thursday to discuss the enforcement action.
Tesla stock plummeted nearly 9 percent in after-hours trading following the court filing.
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