Detroit, Sep 28 (AP) Tesla without Elon Musk at the wheel? To many of the electric car maker’s customers and investors that would be unthinkable. But that’s what government securities regulators now want to see. Also Read - Ahead of 9-Minute-9-PM Challenge, Netizens Flood Internet With Hilarious Memes
The Securities and Exchange Commission has asked a federal court to oust Musk as Tesla’s chairman and CEO, alleging he committed securities fraud with false statements about plans to take the company private. Also Read - Disney's Aladdin or Tangled? Twitter User's Broken Mirror Painting Sets Netizens Lauding For All Dreamy Reasons!
The agency says in a complaint filed Thursday that Musk falsely claimed in an August 7 statement on Twitter that funding had been secured for Tesla Inc. to go private at USD 420 per share, a substantial premium over the stock price at the time. Also Read - COVID-19: Sports Action Happening Live During Coronavirus On Twitter
An SEC press release says the agency asked the US District Court in Manhattan for a “bar prohibiting Musk from serving as an officer or director of a public company.” It also is asking for an order enjoining Musk from making false and misleading statements along with repayment of any gains as well as civil penalties.
Ousting Musk, who has a huge celebrity status with more than 22 million Twitter followers, would be difficult and could damage the company. He’s viewed by many shareholders as the leader and brains behind Tesla’s electric car and solar panel operations.
The stock market shuddered at the prospect. Shares of Tesla plunged nearly 12 per cent in extended trading Thursday.
“Corporate officers hold positions of trust in our markets and have important responsibilities to shareholders,” Steven Peikin, co-director of the SEC’s Enforcement Division, said in a statement. “An officer’s celebrity status or reputation as a technological innovator does not give license to take those responsibilities lightly.” Musk, in a statement issued by Tesla, called the SEC action unjustified.
“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,” the statement said.
The complaint alleges that Musk’s tweet harmed investors who bought Tesla stock after the tweet but before accurate information about the funding was made public.
Peter Henning, a law professor at Wayne State University and a former SEC lawyer, said it’s the first fraud case involving use of social media by the CEO of a public company. Musk and Tesla didn’t fully disclose details of the plan in the August 7 tweet or in later communications that day as required, he noted.
“You can’t make full disclosure in 280 characters,” he said, referring to the length limit of a tweet.
Joseph Grundfest, a professor at Stanford Law School and former SEC commissioner, said Musk will likely want to settle before trial so that he could conceivably stay on as CEO, with some constraints such as prohibiting him from making public statements without supervision. But Musk also could agree to step down as CEO and instead take another title, such as chief production officer.
The Wall Street Journal, citing people familiar with the matter, reported that Musk had been close to settling with the SEC but that he and his lawyers decided at the last minute to fight the case. Tesla did not respond to a request for comment on the report.
Grundfest also said that the challenge for the SEC is to “appropriately discipline Musk while not harming Telsa’s shareholders.” According to the complaint, Musk met with representatives of a sovereign investment fund for 30 to 45 minutes on July 31 at Tesla’s Fremont, California, factory. Tesla has identified the fund as Saudi Arabia’s Public Investment Fund, which owns almost 5 per cent of the company.
Fund representatives expressed interest in taking Tesla private and asked about building a factory in the Middle East, Musk told the SEC. But at the meeting, there was no discussion of a dollar amount or ownership stake for the fund, nor was there discussion of a premium to be paid to Tesla shareholders, the complaint said.
Musk told the SEC that the lead representative of the fund told him he would be fine with reasonable terms for a go-private deal.
“Musk acknowledged that no specific deal terms had been established at the meeting and there was no discussion of what would or would not be considered reasonable. Nothing was exchanged in writing,” the complaint stated.
The SEC alleged in the 23-page complaint that Musk made the statements using his mobile phone in the middle of a trading day. That day, Tesla shares closed up 11 percent from the previous day. Musk has said that he posted the go-private tweet while driving to the airport and that no one reviewed it.
The statements, the complaint said “were premised on a long series of baseless assumptions and were contrary to facts that Musk knew.” Later in the month, Tesla announced that the go-private plan had been scrapped.
In its complaint, the SEC said that Musk’s statements hurt short sellers, investors who borrow a company’s stock betting that it will fall. Then they buy the shares back at a lower price and return them to the lenders, pocketing the profit.
In August, more than USD 13 billion worth of Tesla shares were being “shorted” by investors, the complaint said, as the stock was under pressure due to questions about Tesla’s finances and Musk’s erratic behaviour. (AP) MRJ MRJ
This is published unedited from the PTI feed.