SEC sues Musk for fraud and seeks to remove him from Tesla Inc.
Securities regulators on Thursday sued Elon Musk for fraud and sought to remove him from Tesla Inc., raising doubts about the future of an electric-car maker synonymous with the audacious entrepreneur.
The SEC's lawsuit -- sparked by Mr. Musk's August comments that he had lined up funding for a corporate buyout -- seeks civil penalties against Mr. Musk and asks a court to bar him from being the officer or director of a public company.
"These misleading statements, none of which were pre-cleared or reviewed by anyone at Tesla, caused significant market confusion and disruption," said Steven Peikin , the SEC's co-director of enforcement.
The move by the Securities and Exchange Commission amounts to one of the most high-profile actions against a corporate executive in recent years. It sued Mr. Musk in Manhattan federal court, alleging he "had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source," according to the lawsuit. U.S. law forbids public-company executives from making false statements or misleading investors about information that is material to an investment decision.
A Tesla spokesman couldn't immediately be reached for comment.
Tesla shares fell by almost 10%, to $277.67 , in after-hours trading, according to Dow Jones Market Data.
The claims against Mr. Musk caps a year of incredible turmoil for the auto maker, which has struggled to boost production of the Model 3 sedan -- Tesla's bet that it can bring electric cars to the masses through a more affordable car.
As Tesla has struggled since starting Model 3 production in July of last year, when its limited cash supply has taken a hit, placing the company under increased scrutiny about whether Mr. Musk would need to raise additional funds.
He has said Tesla won't need to do so and has promised that he can keep the rate of Model 3 output at a pace that will help the company become cash flow positive this quarter and profitable.
Amid those pressures, Mr. Musk has fought a war against short sellers, investors betting on Tesla's failure.
Mr. Musk jolted shareholders Aug. 7 when he tweeted that he planned to take the company private at $420 a share, or $72 billion . Seventeen days later, Mr. Musk announced he decided against the idea.
The SEC alleged in its lawsuit that Mr. Musk first informed Tesla's board of directors, chief financial officer and general counsel on Aug. 2 that he wanted to take the company private at $420 .
Mr. Musk told the SEC that he had met with representatives of a sovereign-wealth fund on July 31 , according to the lawsuit. The fund's lead representative "expressed interest in taking Tesla private," the lawsuit states.
Mr. Musk said in a blog post on Aug. 13 that Saudi Arabia's sovereign-wealth fund had approached him several times over nearly two years about providing financial support to take Tesla private.
But Mr. Musk's discussion with the sovereign-wealth fund didn't include any financial details about such a transaction, the SEC alleged. The parties didn't, for instance, discuss how much of a premium over Tesla's current trading price would be offered to shareholders. The lawsuit says Mr. Musk chose $420 by estimating he would need to offer a 20% premium -- which would amount to $419 -- and then rounding up by $1 .
"Musk stated that he rounded up the price 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,'" the SEC's complaint said. The number "420" is sometimes associated with marijuana use.
The Justice Department also is investigating Mr. Musk's going-private tweet.
Write to Dave Michaels at dave.michaels@wsj.com
(END) Dow Jones Newswires
09-27-18 1742ET
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