U.S. Markets closed

Elon Musk sued by SEC, Tesla shares plunge

The Securities and Exchange Commission filed a lawsuit Thursday accusing Tesla CEO Elon Musk of defrauding investors when he tweeted last month that he was considering taking the company private.

The SEC’s complaint alleges that Musk “falsely indicated” that he could “take Tesla private at a purchase price that reflected a substantial premium over Tesla stock’s then-current share price, that funding for this multi-billion dollar transaction had been secured, and that the only contingency was a shareholder vote.” The lawsuit seeks an order for Musk to disgorge ill-gotten gains, pay penalties and be banned from serving as an officer or director of a public company.

Musk “had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source,” the SEC said in its complaint.

Shares of Tesla (TSLA) fell in after-hours trading. The stock was down 10.75% to $275.45 per share at 5:32 p.m. EDT. Bloomberg first reported news of the SEC’s complaint.

“This unjustified action by the SEC leaves me deeply saddened and disappointed,” Musk said in a statement Thursday. “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.”

“Funding secured”

Musk said Aug. 7 in a company blog post that he was considering taking Tesla private at $420 per share, representing a 20% premium over the stock price following the company’s second-quarter earnings release. Earlier that day, Musk had written in a Twitter post that he had “funding secured” for such a deal. He concluded the blog post saying that the “proposal to go private would ultimately be finalized through a vote of our shareholders.”

 

FILE PHOTO: Founder and CEO of Tesla Motors Elon Musk speaks during a media tour of the Tesla Gigafactory, which will produce batteries for the electric carmaker, in Sparks, Nevada, U.S. July 26, 2016. REUTERS/James Glover II/File Photo

The SEC wrote in its complaint that Musk’s Aug. 7 statements “created the misleading impression that certain terms of a transaction to take Tesla private had been determined when, in fact, they had not even been explored, and in some cases, proved to be impossible.”

In a follow-up company blog post issued Aug. 13, Musk explained that his assertion of having “funding secured” was based on multiple encounters he had with the Saudi Arabian sovereign wealth fund, where he felt there was “no question that a deal with the Saudi sovereign fund could be closed.” But the SEC wrote in its complaint that “Musk’s statements were premised on a long series of baseless assumptions and were contrary to facts that Musk knew.”

“An officer’s celebrity status or reputation as a technological innovator does not give license to take those responsibilities lightly,” Steven Peikin, co-director of the SEC’s Enforcement Division, said in a statement. 

Musk also violated Nasdaq rules requiring that companies such as Tesla notify the stock exchange at least 10 minutes prior to publicly releasing material about events including proposed privatization, the SEC alleged in its complaint.

The Justice Department was reported earlier this month to have opened a criminal probe into Tesla over Musk’s statements about bringing the company private. Tesla confirmed that it had received a voluntary request for documents from the DOJ and was “cooperative in responding to it,” the company said in a statement at the time.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

Read more about Tesla:

Tesla’s Elon Musk just invited a big lawsuit