US securities regulators on Thursday accused Tesla CEO Elon Musk of fraud and sought to remove him from his position at the electric carmaker, alleging that he misled investors with false public statements.
In a lawsuit filed a federal court in New York, the Securities and Exchange Commission (SEC) said Musk had put out “false and misleading” tweets last month about potentially taking Tesla private, Reuters reports.
The reference was to Musk’s Aug. 7 move when he told his more than 22 million Twitter followers that he might take Tesla private at US$420 per share, and that there was “funding secured.”
The SEC said that Musk “knew or was reckless in not knowing” that his tweets about taking Tesla private at US$420 a share were false and misleading, given that he had never discussed such a transaction with any funding source.
The regulator said Musk met for less than an hour with three representatives of Public Investment Fund, at Tesla’s Fremont, California, plant on July 31 during which the lead representative for the Saudi Arabian sovereign wealth fund expressed interest in taking Tesla private if the terms were “reasonable.”
Musk acknowledged the meeting lacked discussion of “even the most fundamental terms” of the deal and nothing was set in writing, according to the lawsuit. Musk then did not communicate with the fund representatives again until three days after his tweets.
On Aug. 24, after news of an SEC probe had become known, Musk blogged that Tesla would remain public, citing investor resistance.
Thursday’s lawsuit also seeks to impose a civil fine and other remedies. The SEC does not have criminal enforcement power. It said Musk would remain as Tesla’s CEO until the matter was settled legally.
The lawsuit does not preclude action by the Department of Justice, Reuters cited a source as saying. Tesla disclosed earlier this month that it was answering questions from the Justice Department.
In its lawsuit, the SEC said Musk calculated the US$420 price per share based on a 20 percent premium over that day’s closing share price and because of the number’s slang reference to marijuana. It quoted Musk as saying he thought his girlfriend would find it funny.
The suit seeks to bar Musk from serving as an executive or director of publicly traded companies like Tesla.
Musk, meanwhile, issued a statement saying that he was “deeply saddened and disappointed” by the “unjustified action by the SEC.”
“I have always taken action in the best interests of truth, transparency and investors. Integrity is the most important value in my life and the facts will show I never compromised this in any way,” he said.
The bid to bar Musk as an officer of any public company marks a rare move for the SEC against the CEO of a well-known firm.
Musk has long used Twitter to criticize short-sellers betting against his company, and already faced several investor lawsuits over the Aug. 7 tweets, which caused Tesla’s share price to gyrate.
On Thursday, following the news of the SEC action, Tesla stock tumbled 12 percent in after-hours trading.
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