By on September 27, 2018

Elon Musk + Tesla Model S Circa 2011

Documents filed in a Manhattan federal court Thursday reveal the U.S. Securities and Exchange Commission is suing Tesla CEO Elon Musk for fraud. The SEC opened an investigation into Musk after the CEO fatefully tweeted his intent to take the company private. “Funding secured,” Musk wrote in the August 7th tweet.

The go-private plan quickly fell apart. In the lawsuit, published by Bloomberg, the SEC accuses Musk of fabricating the claim made to 22 million social media followers, many of them investors.

“Musk made his false and misleading public statements about taking Tesla private using his mobile phone in the middle of the active trading day,” the SEC wrote. “In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source.”

In a later blog post, Musk claimed Tesla had engaged in talks with Saudi Arabia’s sovereign wealth fund, which was seen as a potential backer for the multi-billion share buy-up plan. Still, no details on secured funding arose. The Saudis later said this wasn’t their style of investment, and later announced $1 billion in funding for a startup Tesla rival. As it grew increasingly obvious that the statement didn’t have legs, the automaker’s share price plummeted. Investment banks were called in to seek the necessary funding before Musk pulled the plug on the plan.

Lawsuits from several investors rolled in around the same time the SEC investigation kicked off. Earlier this month, word of a Department of Justice probe broke in the media. While Musk is allowed to take his publicly traded company private, protocol demands that he announce his intent in a proper fashion to avoid blindsiding investors and traders.

“He did not discuss the content of the statements with anyone else prior to publishing them to his over 22 million Twitter followers and anyone else with access to the Internet,” the lawsuit states. “He also did not inform Nasdaq that he intended to make this public announcement, as Nasdaq rules required.”

It continues:

“According to Musk, he calculated the $420 price per share based on a 20% premium over that day’s closing share price because he thought 20% was a ‘standard premium’ in going-private transaction. This calculation resulted in a price of $419, and Musk stated that he rounded the price up to $420 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.'”

If the SEC gets its way, Musk will find the levers of power pulled from his grasp. The lawsuit seeks an order barring him from serving as an officer or director of a public company.

Tesla’s stock, already weakened by the shenanigans of the past month, plunged in after-hours trading, hitting $275.72 per share at 5 p.m. On the day of the Tweet That Started It All, Tesla’s stock closed at  $379.57.

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58 Comments on “Forget the British Diver, Here’s Real Trouble – SEC Hits Elon Musk With Fraud Suit...”


  • avatar
    Vulpine

    You’ll forgive me if I take a ‘wait and see’ attitude about this. Too many people are seeing this as justification for their decade-old bearish posture for the man and the company; I don’t see it that way. While I won’t argue he made a mistake with the stated tweet, whether he did so knowing it was wrong or was just expressing an opinion that got out of hand could mean the difference between fraud or irresponsibility due to stress. Considering the stress he’s been under for the last 18+ months, I expect it was not intentional fraud.

    • 0 avatar
      R Henry

      Is “intent” required for fraud liability?

    • 0 avatar
      civicjohn

      @Vulpine, what a surprise you are the first to post.

      We’ll all wait and see, but thanks for the armchair diagnosis.

      “Your Honor, I was stressed out when I robbed that bank”.

    • 0 avatar
      Lockstops

      Yeah well, why not just publicly state that Tesla was about to make a 50 billion profit in the next quarter? And all orders were ‘secured’?

      No matter, because ‘he didn’t know it was wrong’, or it might be an ‘opinion that got out of hand’?

      Come on, Musk knew funding wasn’t secured and he knew he was lying. The motives for that are very bad at best, and at worst are incredibly bad. Actually I don’t see any possible motive for that false public statement that could be less than very bad.

    • 0 avatar
      sirwired

      His tweet wasn’t an “opinion” it was a bald statement of fact.

      And if he accidentally commits securities violations under stress, perhaps he shouldn’t be in charge.

      • 0 avatar
        Vulpine

        Who said it was an, “opinion”? I said it was a mistake and one he probably would not have made if he were more alert.

        Ok, correcting myself. I did say that. But I’ll stick with the second part of what I said right here. A mistake and one that will probably cost him.

      • 0 avatar
        Vulpine

        Oh, and I disagree that it was, “a bald statement of fact.” The original wording was vague enough that it could have been read at least two different ways. The SEC has just chosen to interpret it as either intentional fraud or accidental through irresponsible tweeting.

        • 0 avatar
          sirwired

          What is your proposed alternative meaning for “funding confirmed”? Or, for that matter, his completely fabricated sale price?

          And “accidental”? An accident would have been saying $42 instead of $420. No, he was just making stuff up.

          • 0 avatar
            Vulpine

            “What is your proposed alternative meaning for “funding confirmed”?”
            — Argued that when he stated it. Don’t plan to reiterate it.

            “And “accidental”? An accident would have been saying $42 instead of $420.”
            — More like ‘accidental that he said anything’, considering the time and place when he said it.

          • 0 avatar
            sirwired

            @vulpine

            Gee, sorry I haven’t been keeping up on every post you make on TTAC; I guess I’ll have to let the mystery continue then.

            And how does somebody “accidentally” post a message? “Funding confirmed” and a price have very specific meanings, and Musk is well-versed in the English language. “I was tired” and “I was under stress” is not, in fact, a valid excuse for the violation of securities laws around making such statements. It might be a defense to criminal fraud charges, but not the charges at issue here.

          • 0 avatar
            Vulpine

            We shall see, SirWired. Which is what I said at the outset. I’m not saying he’s either innocent or guilty; only that we’ll have to wait and see how it ends.

            At least for the moment, Tesla itself is not being charged. At least, not that I’ve been able to determine. There are some who claim Tesla Motors was charged as well, but I’ve seen no proof.

          • 0 avatar
            Vulpine

            Note again: Musk never said, “Funding is secured.” the exact words were “… funding secured.” In context, it COULD mean the funding was secured OR it could mean “… if funding secured.”

          • 0 avatar
            JimZ

            In context, it COULD mean the funding was secured OR it could mean “… if funding secured.”

            yes, and as the old saying goes if my aunt had balls she’d be my uncle.

          • 0 avatar
            Vulpine

            … And probably a damned sight more frightening without them.

    • 0 avatar
      JohnTaurus

      Aww, if it were Ford’s CEO doing some so stupid, you’d be calling for his head and a systematic disassembly of the entire company.

      But, hey, Ford build a $#¡ГГ¥ car in 1972, so all’s fair.

  • avatar
    Robbie

    Musk, of course, has crossed a line. The SEC cannot allow such blatant stock price manipulation and his days at Tesla’s CEO are numbered. It will be interesting to see what will come next.

  • avatar
    Lockstops

    I was just disappointed that Musk didn’t taunt the SEC first, stating that they don’t have the balls to file suit, if they did they would’ve already done it…

  • avatar
    TMA1

    Nothing good happens on Twitter.

    Young people should be internalizing this motto, the way I used to hear how nothing good happens after 2 a.m.

  • avatar
    EBFlex

    Woo hoo!!! This is fantastic news. It’s good that the SEC is going to hold this fraud accountable.

    His entire reason for putting that tweet out was to deceive and manipulate the stock price. For such a “claimed” smart person, he really is stupid. It’s not wonder Teslas are junk.

    • 0 avatar
      RHD

      Everyone that I know who owns a Tesla absolutely love them. They are extremely safe in an accident, very fast, quiet, comfortable and roomy. There’s not much else like them on the road… yet. That will change in the next few years.

      Hyundai Excels and Yugo GVs are junk. KIA Rio… pretty junky.
      Please explain why and how Teslas are “junk”.

      • 0 avatar
        MBella

        The interior build quality would be one explanation. The fit and finish is abismal. Squeeks and rattles that bad wouldn’t be tolerated on the cars you mentioned, yet alone any other luxury car today.

        • 0 avatar
          vvk

          > The fit and finish is abismal.

          Compared to my 550i, my Model S is not as “premium” in the interior quality. However, I disagree that it is “abismal.” The interior is about on the same level as a second-tier German car, such as Audi or Opel. Certain elements are above that. It does have Mercedes switchgear, after all. I have always liked my BMWs better than my Mercedes in terms of tactile feel of the controls, so it is something I am aware of when I get into my Tesla after driving my BMW. Luckily, it has very few physical controls, so that I don’t have to use the Mercedes switches for much. I don’t have any creaks or rattles and have not experienced any in other Teslas. My BMWs have always been like new after hundreds of thousands of miles, my Mercedes slightly worse in this respect. My Model S only has 43k miles at this point, so it remains to be seen how its interior will hold up as more miles accumulate. I certainly would not compare my Model S to any non-premium Asian or American car in terms of interior build. It always amazes me how Honda and Toyota drivers can accept that level of shoddy interior build and rapid wear. American VW interiors have been going down hill lately, too.

          • 0 avatar
            FWD Donuts

            Just wait a while. Every Tesla I’ve been in with 50,000 miles or so on them are squeaky, rattling hunks of crap.

    • 0 avatar
      FreedMike

      Yes, thousands of employees are closer to being out of work. Woo hoo!

  • avatar
    Master Baiter

    I don’t see how he gets out of this one. It was an unforced error that wouldn’t be tolerated from a middle manager at Fortune 500 company, let alone a CEO.
    .
    .

  • avatar

    Why establishment always tries to kill innovative car startups? Tucker, DeLorean Motor Company, now Tesla. Are Big to Fails and their lobbyist scared?

    • 0 avatar
      dejal1

      He said it and anybody with a pulse who read it thought “That’s going to leave a mark”.

      But you are claiming a conspiracy?

      “They” whoever “They” are didn’t trick him in shooting his mouth off. He did what
      comes naturally. He couldn’t help himself. He never has and never will.

      I’m surprised there’s no mention of the Illuminati, Trilateral Commission and Bohemian Grove.

    • 0 avatar
      EBFlex

      Yes please explain to me who forced this dolt to send that tweet. I’m curious as to your theories.

      Tesla isn’t a threat to any legitimate automaker. Nothing Tesla has done has changed the auto industry in any way. All he did was make low quality, unprofitable fashion accessories.

      You think Ford wants to be in the business of crashing into fire trucks? (Although they may want to look into that as their recalls are all fire related). You think GM wants to be in the business of building cars with mismatched interior panels? You think Honda wants to be in the business of making vehicles that make no money? You think BMW wants to be in the business of making vehicles that spontaneously combust? You think Audi wants to be in the business of making vehicles in a tent? You think Volvo wants to be in the business of making vehicles where they skip quality checks to get them out the door? You think Nissan wants to be in the business of making vehicles so poorly that 4300 of every 5000 made need to be fixed immediately after getting off the assembly line? You think FCA wants to have a CEO that calls a guy a pedophile because a diver said he didn’t like an incredibly stupid submarine idea?

      How is this in any way a conspiracy?

    • 0 avatar
      JimZ

      “Why establishment always tries to kill innovative car startups? Tucker, DeLorean Motor Company, now Tesla. Are Big to Fails and their lobbyist scared?”

      no comment on Tucker, but the DeLorean was an incredible piece of junk and the company would have failed even sooner from its crapulence had it not been for Back to the Future. It was expensive, slow, and poorly built.

    • 0 avatar
      Lockstops

      You have a typo there, you accidentally wrote ‘kill’ when you must’ve meant to write ‘save’.

      Just so you know, Mercedes Benz literally saved Tesla from bankruptcy in 2009. Pretty much the opposite of what you wrote.

  • avatar
    APaGttH

    Clearly the cabal of ICE builders and oil companies has conspired with the government to eliminate Tucker, errrr, Musk, errrrrr, automotive Jesus…

    • 0 avatar
      Vulpine

      We know it happened to Tucker; we think it happened to DeLorean and it sure seems like they were trying with Tesla, considering all the inexplicable delays and accidents throughout these 8 years of Tesla car building (not just the fires over this past year.)

      • 0 avatar
        JimZ

        no, what killed DeLorean was that the car was hot garbage. A dumpster fire. it only gained a bit of “cool” factor after being a supporting actor in a popular film.

        • 0 avatar
          APaGttH

          …no, what killed DeLorean was that the car was hot garbage…

          This. It was grossly underpowered with an awful engine. If it had any more power it would have been a death trap because the chassis dynamics and handling are beyond awful. Build quality was questionable, it was heavy, it was nearly functionless and the doors/windows were a liability.

          The car would have been nothing more than a footnote in automotive history if it wasn’t for BTTF

      • 0 avatar
        Lockstops

        Yeah, it was so evil of Mercedes to save Tesla from bankruptcy in 2009 so it could deliver Tesla a humiliating death blow by forcing Musk to spew s**t on twitter!!

        Dear Tesla cultists: ICE company Mercedes Benz literally, and 100% saved Tesla from bankruptcy in 2009.

  • avatar
    bachewy

    With his recent interview where he smoked some marijuana, does nobody get the 420 joke?

  • avatar
    dantes_inferno

    “I AM THE GREAT AND POWERFUL MUSK! Pay no attention to that man behind the curtain…”

  • avatar
    iddqd

    i called this the m0ment i read his tweet…
    that the jew run SEC starts a witchhunt n0w c0mes as n0 surprise…
    i`d rather have the heads 0f the SEC checked f0r inside trading n0w, as they KNEW the st0ck wuld tumble after the decisi0n made public…
    as if Musk had any m0netary interest in making this p0st- he was simply pissed 0ff by the stck-market, i.e. sh0rt-traders.

  • avatar
    EquipmentJunkie

    Following Musk over the last year has been a real soap opera. The twists and turns of the Tesla plot have been better than TV. Along those lines of watching the unthinkable, the thought occurred to me that this could have been an intentional means for Musk to escape his “deep production hell” that he found himself navigating. He could say that “The Man” took him out. Not likely a possibility, but we are dealing with a tiger of a different stripe with Musk.

    I keep coming back to a point that I have thought of for years and others have stated repeatedly, “With Musk’s vast resources, why not go find the world’s best automotive plant managers and durable goods supply chain managers and pay them ‘I couldn’t say No’ money?” Perhaps I’m just too grounded in reality.

    • 0 avatar
      MrH42

      That would imply that Elon doesn’t know more about every single aspect of manufacturing and supply chain than the rest of the world. Thoughts like that don’t go over well at Tesla.

      • 0 avatar
        EquipmentJunkie

        Sad, but true. The true greats of industry know their limitations and find the best people to do what they can’t.

        Hank the Deuce and the Whiz Kids come to mind. Despite Hank’s many flaws, his vision to hire the Whiz Kids saved Ford…and then eventually nearly killed it with stagnant product. Tip of the hat to David Halbertam’s excellent book from 1986, “The Reckoning”.

    • 0 avatar
      SCE to AUX

      @EquipmentJunkie: Tesla hired those experts, but they’ve been micromanaged by Mr Musk. Eventually, they leave.

  • avatar
    ernest

    The SEC has no sense of humor for this kind of thing. Just ask Martha Stewart how shallow their humor is.

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