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Just moments ago the U.S. Securities and Exchange Commision dropped a bombshell: Elon Musk is being charged with securities fraud over a "series of false and misleading tweets about a potential transaction to take Tesla private."
As we reported back in early August, Musk tweeted out he was considering taking Tesla (NASDAQ:TSLA) private for a huge premium of $420 per share, a massive upside for share prices which at the time were hovering around $340. Here is the now infamous tweet that Elon shared with his over 22 million followers:
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
“Corporate officers hold positions of trust in our markets and have important responsibilities to shareholders,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division. “An officer’s celebrity status or reputation as a technological innovator does not give license to take those responsibilities lightly.”
The SEC’s suit, filed in federal district court, alleges that Musk violated antifraud provisions of federal laws, and wants a "permanent injunction, disgorgement, civil penalties, and a bar prohibiting Musk from serving as an officer or director of a public company."
In other words, if the SEC can make these charges stick with a conviction, Elon Musk would no longer be able to be the CEO of a public company, at least in the United States. Absolutely stunning.
Here is an excerpt from the SEC's official press release:
On August 7, 2018, Musk tweeted to his 22 million Twitter followers that he could take Tesla private at $420 per share (a substantial premium to its trading price at the time), that funding for the transaction had been secured, and that the only remaining uncertainty was a shareholder vote. The SEC’s complaint alleges that, in truth, Musk had not discussed specific deal terms with any potential financing partners, and he allegedly knew that the potential transaction was uncertain and subject to numerous contingencies. According to the SEC’s complaint, Musk’s tweets caused Tesla’s stock price to jump by over six percent on August 7, and led to significant market disruption.
The fact that Elon Musk is being charged with fraud isn't exactly surprising to those that have been following the situation, however, the implications are absolutely massive for Tesla. The company is right in the midst of finally breaking even and generating free cash via the Model 3's production ramp.
The company is widely expected to start generating cash and perhaps post a profitable quarter this year; today's news is simply terrible timing for the Palo Alto-based manufacturer. The SEC charge may the door to a massive class-action lawsuit against Tesla itself, the damages could easily be seen to mount into the billions.
Tesla stock sunk like a rock immediately after this news. Shares are down over 14 percent in after-hours, worth about $8 billion in market capitalization. Stay tuned tomorrow for follow-up coverage of the fall-out.
