SEC sues Tesla CEO Elon Musk for 'misleading' tweet

On Aug. 2, Musk told his 22 million Twitter followers that he was going to take his publicly traded company private. "Am considering taking Tesla private at $420. Funding secured," he tweeted.
6:28 | 09/27/18

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Transcript for SEC sues Tesla CEO Elon Musk for 'misleading' tweet
I'm Stephanie they can and together at Stephen peak and we're co directors of the securities and exchange commission's division of enforcement. Today the SEC filed securities fraud charges against Ilan mosque. The chairman and CEO of Tesla Motors stemming from his August 7 2018. Statements disseminated over Twitter. That he was considering taking tassel right that. Musk statements misled members of the investing public to believe that it was virtually certain he could take tussle private. At a price of 420 dollars per share. Which was a substantial premium over share price at that time because funding for this proposed transaction had been secured and the only contingency remaining. Was a shareholder vote. The market reacted to this information and Tesla stock price quickly treat it out. We allege that mosque statements were false and misleading because they lacked any basis in fact. At the time he made these statements bosque 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 must committed securities fraud. An injunction prohibiting him. From doing so in the future civil penalties discouragement of any ill gotten gains. At a bar prohibiting mosque from serving as an officer or director of a public company in the future. Let me turn now to the allegations in the SEC's complaint. The SEC alleges that on August 7 2018. At approximately 12:48. PM eastern time. In the midst of market hours. Must published a tweet to his 22 million Twitter followers in which he stated. And considering taking tests a private at 420 dollars funding secured. Over the next few hours must meet additional statements through Twitter about the proposed going private transaction. Selection of those statements is in the complaint. Among other things must stated that he would ensure the prosperity of existing shareholders. But he hooked Carl 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. At 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 shareholder vote. These misleading statements. None of which were pre cleared or reviewed by anyone at Tesla. Cause significant market confusion and disruption. Within minutes of the first tweet tests was 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 its members to give the exchange advance notice of market moving information. But it received no advance notice of the announcement. Suspended trading for more than ninety minutes following the tweet. The response of Tesla is investor relations department is further evidence of the extent of confusion caused by mosques conduct. As alleged in our complaint. Over the course of the day on August 7. Tess Liz investor relations personnel. Took must statements at face value. Re assuring analysts that funding had in fact been secured for the transaction. The investor relations department told analysts that there was quote firm offer and that B quote the offer is as firm as it gets. Predictably. As seen on the trading charts on the Boortz next to me. Must tweets significantly impacted both the price and volume of trading in tussle stock. At the end of the trading day on August 7 tekelec Tesla stock closed at 379. Dollars per share. Up more than 6% from its price just prior to the initial tweet. According to the complaint. Mosques tweets were false and misleading. For example. Is tweets that funding was secured. And an investor support is confirmed. Simply not true. He had neither secured a commitment from any source to provide funding for transaction. Nor confirmed investor support. In fact while leading test let's investors to believe that he had a firm offering hand. We allege that mosque had arrived at the price of 420 dollars. By assuming a 20% premium. Over Tesla sedan existing share price. And then rounding up to 420 dollars. Because that this is the significance of that number in marijuana culture and his belief that his girlfriend would be amused by it. Similarly. Must claim that the only reason why this is not certain is that it's contingent on shareholder vote was also false and misleading. Among other things of going private transaction would have required tests was board to approve a formal proposal. But as alleged in our complaint no proposal had even been present at the port. Must also created the false impression that the terms of the transaction had been settled when as we allege they had not even been explored. For example must 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 re tell investors to remain invested in Tesla if it were private. And in fact as he later admitted there was no wait for small shareholders to retain their position in Tesla if I'd gone private. Nor had mosque investigated whether this transaction. Purportedly to be financed by a foreign sovereign wealth fund would require regulatory approvals. Or be able to obtain them. Despite all of these unknowns and uncertainties. Must tweets and blog posts misled investors into believing that was virtually certain that he could take tassel private. At a substantial premium over its been existing share price. Subject only to the contingency. Of assure older.

This transcript has been automatically generated and may not be 100% accurate.

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