Monday, 15 October, 2018

Tesla short sellers score after SEC sues Elon Musk

Musk's Tesla position uncertain as US regulators sue Musk for fraud Elon Musk set Tesla share price based on 'marijuana joke' to impress girlfriend
Kelvin Reese | 30 September, 2018, 01:01

Elon Musk found himself in hot water Thursday when the US federal securities regulator filed a complaint against the Tesla CEO in Manhattan federal court for "false and misleading" tweets about taking the company private.

The SEC's charges stemmed from a tweet by Musk on August 7 that he had "funding secured" for a deal that would value the company at $72 billion. Musk denied, stating that it was just a beautification technique to make Tesla's 20 percent share increase look a bit more appealing. "As a result of Musk's false and misleading statements and material omissions, investors who purchased Tesla stock in the period after the false and misleading statements but before accurate information was made known to the market were harmed", said the suit, which was filed Thursday. Musk has blamed short-sellers, investors betting on a collapse in a company's share price, for Tesla's woes.

Beyond the brouhaha that followed Musk's August tweet about going private - and his about-face three weeks later - USA regulators were reportedly already looking into disclosure issues at Tesla, including its car-production estimates.

The SEC's lawsuit, filed in Manhattan federal court, caps a tumultuous two months set in motion on August 7 when Musk told his more than 22 million Twitter followers that he might take Tesla private at $420 per share, with "funding secured".

The Silicon Valley billionaire said overnight he had done nothing wrong and Tesla's board reiterated its support for him.

Musk stated on Thursday that the SEC's allegations were "unjustified" stating: "I have always taken action in the best interests of truth, transparency and investors".

In a jab at Musk's "funding secured" tweet, RBC Capital Markets says the suit "adds further uncertainty to the Tesla story".

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"Elon's presence at the top of the company isn't required to maintain Tesla's brand equity", he said. The two sides reportedly came close to a settlement before Musk backed out and the SEC filed a complaint seeking to ban him from serving as a director or officer.

In a previous fraud case over blood-testing firm Theranos, the Justice Department brought criminal charges three months after the SEC announced its settlement with the company's founder Elizabeth Holmes.

Under the terms of the deal, Musk and Tesla would have had to pay a nominal fine, and he would not have had to admit any guilt.

Shares of Tesla were down more than 13 percent Friday morning in premarket trading.

The company has projected profitability under generally accepted accounting principles in the second half of 2018, but some analysts think it will have to raise cash in coming months.

But Tesla devotees believe he is a visionary and vital to the company's future.

For its part, Tesla's board is standing behind Musk, declaring in a statement that it is "fully confident in Elon, his integrity, and his leadership of the company".

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