Elon Musk Is Being Sued by the SEC for Fraud

Tesla model 3 sedan

2018 Tesla Model 3 sedans sit on display outside a Tesla showroom in Littleton Colo

It sought unspecified monetary penalties and added a market-rattling request - that a judge bar Musk from serving as an officer or director of a public company.

"The chairman and CEO of a public company has important responsibilities to shareholders", said Stephanie Avakian, co-director of the U.S. Securities and Exchange Commission's Division of Enforcement, at a press briefing.

According to Bloomberg, the suit comes in the wake of a scandal involving Musk and his Twitter account. In doing so, the SEC claims, Musk ran afoul of the commission's regulations.

Explaining the tweet, Musk said he understood Saudi Arabia's sovereign wealth was prepared to provide funding to take the company private at a proposed price of close to $420 per share.

But the SEC says Mr Musk had not discussed or confirmed key deal terms including price with any funding source.

"This unjustified action by the SEC leaves me deeply saddened and disappointed", Musk said in a statement to CNBC.

The SEC said in a statement the investigation will continue as the case is litigated.

The watchdog said Musk "knew, or was reckless in not knowing" that his statements would mislead investors, and that it was "simply not true" that the only contingency remaining in his plan was a shareholder vote.

The effort to take Tesla private was abandoned in late August.

The legal document points toward the initial "Funding secured" tweet, followed by additional ones published over the next few hours, including ones regarding investor support.

In a statement on Tesla's website following the initial tweet, Musk provided an explanation for setting the stock price at $420, writing that he had calculated the price per share based on a "20% premium over the stock price following our Q2 earnings call (which had already increased by 16%)".

Musk came up with the price because he thought a 20 per cent premium was standard. "However, the SEC claims those tweets damaged investors and that $420 was an arbitrary number picked because "[Musk] had recently learned about the number's significance in marijuana culture", the SEC noted. That executive told Musk that such a deal was "unprecedented" in his experience.

After the court action became public, Tesla shares collapsed by 12 percent.

It was a short tweet that looks like it's going to end up costing Elon Musk big time.

"Musk responded, 'Yeah, that would be great, '" the suit says. He said Musk could agree to step down as CEO and instead take another title, such as chief production officer. "Will send you shortly".

Elon Musk's tweets are finally coming back to haunt him in a real way.

On August 24, the company solidified that they would not, in fact, be pursuing a buyout.

Musk tweeted on August 7 that he had the "funding secured" to complete a massive deal that would take the Silicon Valley automaker private, sending its stock soaring that day by almost 11 per cent.

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