The Securities and Exchange Commission today charged Elon Musk, CEO and chairman of Silicon Valley-based Tesla, with securities fraud for a series of false and misleading tweets about a potential transaction to take Tesla private.
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.
According to media reports on the SEC’s press conference about the matter, Steven Peikin, co-director of enforcement at the SEC said:“We allege that Musk had arrived at the price of $420 by assuming a 20% premium of what Tesla’s then existing share price (was), and then rounding up to $420 because of the significance of that number in marijuana culture, and his belief that his girlfriend would be amused by it.”
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 6% on August 7, and led to significant market disruption.
“Taking care to provide truthful and accurate information is among a CEO’s most critical obligations,” said Stephanie Avakian, co-director of the SEC’s Enforcement Division in a statement. “That standard applies with equal force when the communications are made via social media or another non-traditional form.”
The SEC’s complaint, filed in federal district court in the Southern District of New York, alleges that Musk violated antifraud provisions of the federal securities laws, and seeks a permanent injunction, disgorgement, civil penalties, and a bar prohibiting Musk from serving as an officer or director of a public company.
Elon Musk has held a number of prominent and pioneering roles: co-founder of PayPal; founder, CEO and lead designer at Space Exploration Technologies’ and co-founder of OpenAI, a non-profit AI research company, which promotes safe artificial general intelligence.