SEC sues Elon Musk for securities fraud over misleading tweets
Good afternoon, and thank you for being here today.
I'm Stephanie Avakian, and together with Steven Peikin, we are co-directors of the Securities and Exchange Commission's Division of Enforcement.
Today, the SEC filed securities fraud charges against Elon Musk, the chairman and CEO of Tesla Motors, stemming from his August 7, 2018 statements Disseminate over twitter that he was considering taking Tesla private.
Musks statements misled members of the investing public to believe that it was virtually certain he could take Tesla private at a prize of $420 per share which was a substantial premium over a share prize at that time.
Because funding for this proposed transaction had been secured.
And the only contingency remaining was the shareholder vote.
The market reacted to this information and Tesla's stock price quickly traded up.
We alleged that Musk's statements were false and misleading because they lacked any basis in fact.
At the time he made these statements Musk had not secured funding for the proposed transaction.
To the contrary We allege that he had not even discussed key deal terms including price with any potential source of funding.
The SEC's complaint which was filed earlier today in Federal District Court in the Southern District of New York seeks a finding that Musk committed securities fraud.
An injunction prohibiting him from doing so in the future Civil penalties, discouragement of any ill gotten gains, and a bar prohibiting Musk from serving as an officer or director of a public company in the future.
Let me turn now to the allegations in the FCCs complaint.
The FCC alleges that on August 7th, 2018, at approximately 12:48 PM Eastern time.
In the midst of market hours, Musk published a tweet to his 22 million twitter followers in which he stated "I'm considering taking Tesla private at $420, funding secured".
Over the next few hours, Musk made additional statements through twitter about the proposed going private transaction.
A selection of those statement is in the complaint and among other things must stated that he would ensure the prosperity of existing shareholders.
That he hoped all current shareholders would remain with Tesla even if it were private, and that he would create a special purpose fund for that purpose.
That no Tesla investors would be forced to sell their shares, that a private Tesla would in his words be smoother and less disruptive, because there would no longer be what he termed negative propaganda from short sellers.
And finally that investor support is confirmed, and the only reason why this is not certain Is that it's contingent on a share holder vote.
These misleading statements, non of which were pre-cleared or reviewed by anyone at Tesla caused significant market confusion and disruption.
Within minutes of the first tweet, Tesla's own head of investor relations questioned whether the communication was even legitimate.
Investors and journalists contacted Tesla and asked whether the tweet was a joke.
And NASDAQ which requires it's members to give the exchange advance notice of market moving information, but had received no advance notice of the announcement suspended trading for more than 90 minutes following the tweet.
The response of Tesla's investor relations department is further evidence of the extent of confusion caused by Musk's conduct.
As alleged in our complaint, over the course of the day on August 7th Tesla's investor relations personnel took Musk's statements at face value, reassuring analysts that funding had in fact been secured for the transaction.
The investor relation's department told analysts that there was "firm offer" and that "the offer is as firm as it gets".
Predictably, as seen on the trading charts on the boards next to me, Musk's tweets significantly impacted both the price and volume of trading in Tesla's stock.
At the end of the trading day on August 7, Tesla stock closed at $379 per share, up more than 6% from its price just prior to the initial tweet.
According to the complaint, Musk's tweets were false and misleading.
For example, His tweets that funding was secured and then investor support is confirmed is simply not true.
He had neither secured a commitment from any source to provide funding for a transaction nor confirmed investor support.
In fact, while leading Tesla's investors to believe that he had a firm offer in hand We allege that Musk had arrived at the price of $420 by assuming a 20% premium of what Tesla's then existing share price, and then rounding up to $420 because of the significance of that number in marijuana culture, and his belief that his girlfriend would be amused by it.
Similarly most claim that the only reason this why this is not certain, is that its contingent on the share holders vote, was also forcing misleading.
Among other things are going private transactions would have require Tesla's board to approve a formal proposal, but allege in our complains, no proposal had even been presented to he board.
Musk also created the false impression that the terms of the transaction had been settled when, as we alleged, they had not even been explored.
For example, Musk tweeted that current retail shareholders would have the option of continuing to hold their shares even though he had been told before he published the tweets That it would be very difficult for retail investors to remain invested in Tesla if it were private.
And in fact as he later admitted, there was no way for small shareholders to retain their position in Tesla if it had gone private.
Nor had Musk investigated whether this transaction purportedly to be financed by a foreign sovereign, well fund Would require regulatory approvals, or be able to obtain them.
Despite all of these unknowns and uncertainties, Musk's tweets and blog posts misled investors into believing that it was virtually certain that he could take Tesla private at a substantial premium over its then existing share price.
Subject only to the contingency of a shareholder vote.
This case demonstrates our commitment to holding individuals accountable for violations of the Federal securities laws.
A chairman and CEO of a public company has important responsibilities to shareholders.
Those responsibilities include the need to be scrupulous and careful about the truth and accuracy.
Of statements made to the investing public.
Whether those statements are made in a traditional form, such as a press release or an earning call, or through less formal methods such as Twitter or other social media, and as we have said before in connection with other matters, neither celebrity status, nor reputation as a technological innovator.
Provide an exemption from the federal securities laws.
Finally, let us introduce and thank the SEC team that has worked tirelessly over the last two months on this case.
They are Walker Newell, Brent Smyth, Barrett Atwood, Steve Buchholz, Erin Schneider, Jina Choi and Cheryl Crumpton.
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