Tesla Board Backs Musk as SEC Files Suit Over Privatization Tweet

The US Securities and Exchange Commission (SEC) is charging Tesla CEO Elon Musk with securities fraud following a series of “false and misleading” tweets about a potential transaction to take Tesla private.

The SEC’s complaint, which sent Tesla’s share price tumbling on September 27, alleges Musk violated antifraud provisions of the federal securities laws.

The lawsuit could lead to a permanent injunction, penalties and a bar prohibiting Musk from serving as an officer or director of a public company.

The lawsuit also raises the possibility of Musk’s exit from the company, which is closely tied to his image as an unconventional visionary pushing the boundaries of technology.

The fuse for the explosive announcement was lit when Musk tweeted that he was considering a buyout of the publicly held company and had secured funding for it.

Less than three weeks later, those plans were taken off the table.

In a blog post at the time, Musk told investors he had decided Tesla was better off remaining public after all, and called the now-infamous tweet regarding funding “premature.”

The SEC complaint states Musk’s statements falsely indicated the virtual certainty that he could take Tesla private at a purchase price that reflected a substantial premium over Tesla stock’s then-current share price.

The SEC claims that in reality Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source.

“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, wrote in a statement.  “An officer’s celebrity status or reputation as a technological innovator does not give license to take those responsibilities lightly.”

The carmaker’s board was quick to back the embattled CEO — noting the company and its board of directors has full confidence in Musk’s integrity and leadership of the company.

“Our focus remains on the continued ramp of Model 3 production and delivering for our customers, shareholders and employees,” the statement, released to various news organizations, read.

Musk himself released a statement through Tesla expressing his sadness and disappointment with what he called an “unjustified” lawsuit.

“I have always taken action in the best interests of truth, transparency and investors,” he wrote. “Integrity is the most important value in my life and the facts will show I never compromised this in any way.”

Tesla is also facing a criminal investigation from the US Justice Department. Last week, a report citing two unnamed sources “familiar with the matter” claimed the DoJ investigation is in the early stages, could take months, and may end with prosecutors deciding against filing charges.

“Tesla requires positive news flow around the future of the company, innovation in future vehicles and adjacent markets in our view,” Jeffrey Osborne, an analyst at financial-services firm Cowen, said in a note acquired on Thursday by The Wall Street Journal. “The question is does this news around Mr. Musk personally impact order rates or more importantly lead to order cancellations.”

— Nathan Eddy is a filmmaker and freelance journalist based in Berlin. Follow him on Twitter.

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