'Going private' tweet lands Elon Musk in lawsuit for fraud

Elon Musk
In an email to all Tesla employees earlier on Tuesday, Musk said he is going to take Tesla private in the near future: Photo | Reuters

New York: The Securities and Exchange Commission on Thursday presented charges against the founder of Tesla Inc., Elon Musk, accusing him of fraud after last month he announced on Twitter that he was planning to take the automaker private.

The SEC, which filed its lawsuit in a New York court, says that Musk issued 'false and misleading' statements and failed to properly notify regulators of important company events, Efe reported.

After news broke of the SEC suit, shares of Tesla plunged 10.63 per cent in after-market trading and are currently about 30 per cent below the highest value they reached last year of $387.46.

The accusations come less than two months after Musk posted his tweet on August 7 announcing that he was considering taking Tesla private at a price of $420 per share and claiming that he had found guaranteed financing for the deal.

"Am considering taking Tesla private at $420. Funding secured," tweeted Musk.

After the unusual announcement, Tesla shares rose precipitously in price in just minutes, climbing more than 7 per cent and closing the trading session 11 per cent higher.

After the initial tweet, Musk posted subsequent tweets and reemphasized his intention to take the firm private, and the SEC cited those additional tweets in its complaint as additional misleading statements.

The SEC contends that Musk did not ask Tesla shareholders to approve the key terms of taking the firm private.

The SEC says in its complaint that 'Musk knew that he (1) had not agreed upon any terms for a going-private transaction with the Fund or any other funding source; (2) had no further substantive communications with representatives of the Fund beyond their 30 to 45 minute meeting on July 31; (3) had never discussed a going-private transaction at a share price of $420 with any potential funding source."

Under current US law, company officials are responsible for erroneous statements they make regarding their firms or omitting information needed by investors or shareholders to make an informed decision about their interests in the firm.

The SEC does permit the use of social networks by firms to disseminate information under the condition that the decision to do so be communicated to shareholders.