Elon Musk could be sued for fraud
The founder of Tesla, Elon Musk is facing criminal charges of fraud due to statements he made on Twitter last month.
The US Securities and Exchange Commission in New York has accused Musk on Thursday of fraud and they are actually seeking to remove him from his role in charge of the electric car company.
The SEC committee said that Elon Musk made a series of "false and misleading" tweets in relation to taking Tesla private last month.
The problem is that Tesla is a public company and by suggesting that he would take it private without the consent and consultation of the shareholders is a breach of trust and is misleading to investors which makes it a serious matter.
The SEC is alleging that Musk has committed securities fraud with ‘funding secured’ and are seeking to permanently ban him from serving as officer or director at a public company.
He made statements in a series of Tweets on August 7 saying that he was thinking of taking Tesla private. According to the SEC, Just twelve minutes after his first tweet, the head of investor relations at Tesla texted Musk's chief of staff to ask whether Musk's announcement was "legit".
If Musk,(47) was to be removed from his position at Tesla it would be a huge loss as he is not only the founder but also the public face of Tesla. Losing him would be a big blow especially at this time as the company is making major loses. Even though Tesla is experiencing a loss, its market value is more than $50 billion, chiefly because of investors' belief in Musk's leadership.
The Department of Justice could actually press criminal charges if it all goes south for the billionaire. As a result of the statements on Twitter, Tesla shares tumbled 12 per cent in after-hours trading. Despite this, Tesla's board said they are "fully confident" in Musk who also maintains that he has done nothing wrong:
In response, Karl Brauer, the executive publisher at car research firm Kelley Blue Book said:
"Elon is Tesla and Tesla is Elon and that's great when Elon is scoring touchdowns and grand slams but not so great when there are negative things tied to him,"
The SEC lawsuit was filed in a Manhattan federal court specifically due to Musk telling his more than 22 million Twitter followers that he might take Tesla private at $420 per share, with "funding secured".
On August 24, Musk backtracked from his position and said that Tesla would remain public, citing investor resistance. The filed lawsuit, states that Musk calculated the $420 share price based on a 20 per cent premium on top of that day’s closing share price and because of the number's slang reference to marijuana.
The move to remove a CEO of a well-known firm is a rare move for the SEC. The director of the Weinberg Center for Corporate Governance at the University of Delaware, Charles Elson said:
“The lesson for CEOs is that the rules apply to everyone including highly successful visionaries,”
Tesla has been struggling to deliver its new Model 3 car after a long series of production issues and delays. The model 3 is seen as key to the company's future profitability.
According to the SEC, Musk either "knew or was reckless in not knowing" the consequences of his public Tweets as they were false and misleading because he had not discussed such a transaction with any funding source.
Musk met for less than an hour with three Public Investment Fund representatives of on July 31 at the company's Fremont, California plant. The leading representative was for the Saudi Arabia sovereign wealth fund who have expressed an interest in taking Tesla private if the terms were "reasonable,".
Musk admitted though, that the meeting lacked discussion of "even the most fundamental terms" of the deal and nothing was set in writing, according to the lawsuit. Despite the lack of any concrete agreements with investors, a week later, Musk announced his plan to the world without any consultation.
The head of investor relations was asked whether there was a verbal or written commitment OF funding.
"I actually don't know, but I would assume that given we went full-on public with this, the offer is as firm as it gets,"
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