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SEC Sues Elon Musk Over his Tweets to Take Tesla Private

On September 27, 2018, the U.S. Securities and Exchange Commission ("SEC") sued Tesla CEO, Elon Musk ("Musk"), alleging his August tweets about being prepared to take his Tesla private at a much higher price than its stock at the time were baseless assertions and violated federal securities laws.

On August 7, 2018, Musk tweeted that he had enough funding and investors to take Tesla private for $420 per share, resulting in a 6 percent increase in the company's stock price by the close of the day. Musk later explained that a brief meeting he had with an investment fund in late July led him to believe he could take Tesla private, even though the investment fund didn't discuss price or regulatory hurdles.

According to the SEC complaint, Musk based the $420 per share transaction price on a 20 percent premium to Tesla's stock price at the time and added $1 because "he had recently learned about the number's significance in marijuana culture and thought his girlfriend 'would find it funny, which admittedly is not a great reason to pick a price.'"

Musk, who said he is "saddened and disappointed" with the SEC's choice, explained he has "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."

Companies are required to notify NASDAQ before releasing material information to the public, a step Musk did not take before tweeting his announcement to his 22 million Twitter followers.

Musk later attempted to clarify that his initial tweet was based on his assumption that the deal with the investment fund was definite, although the SEC alleges the parties never even discussed the terms of the potential deal.

On August 24, 2018, Musk revealed that Tesla would remain a public company. Stock prices plummeted as a result, falling more than 15 percent below their value on August 7, when Musk tweeted about taking the company private.

In addition to a fine, the SEC is asking the court to bar Musk from serving as a director or officer of any public company. Stephanie Avakian, co-director of the SEC's Enforcement Division, stated, "Neither celebrity status nor reputation as a technological innovator provide exemption from the federal securities law."

The U.S. Department of Justice is also investigating Musk's tweets, and Tesla investors have filed multiple proposed class action suits regarding the event.

The legal team at Shepherd, Finkelman, Miller & Shah, LLP ("SFMS") has significant experience litigating securities matters. If you have any questions regarding this subject or this posting, please contact Nick Lussier ([email protected]) or Chiharu Sekino ([email protected]). We can also be reached toll-free at (866) 540-5505.

SFMS is a nationwide law firm with offices in California, Connecticut, Florida, New Jersey, New York, and Pennsylvania. SFMS is an active member of Integrated Advisory Group (www.iaginternational.org), which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about SFMS, please visit us at www.sfmslaw.com.

Sources

Graf, Rachel. "SEC Sues Tesla CEO Elon Musk Over Going-Private Tweets." Law 360. Last modified on September 27, 2018.

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