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Elon Musk Accused by SEC of Misleading Investors in August Tweet
Tesla Inc. Chief Executive Officer Elon Musk was accused by the Securities and Exchange Commission of misleading investors when he tweeted that he had funding lined up to take the company private.
The agency said Musk fabricated the claim in his August tweet, which sent Tesla shares higher.
"In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source," the SEC said in complaint filed Thursday in Manhattan federal court, less than two months after Musk's tweet.
The suit seeks an order from a judge barring Musk from serving as an officer or director of a public company, a request often made in SEC lawsuits, as well as unspecified monetary penalties.
Shares fell about 10 percent in after-hour trading on news of the lawsuit. The company, which wasn't sued, and an attorney for Musk didn't immediately respond to requests for comment. The SEC has scheduled a press conference for 5 p.m.
The complaint: 1:18-cv-8865 (alt source).
Current (delayed) stock quote: TSLA.
Also at the BBC, TechCrunch, Bloomberg, c|net, and Ars Technica.
[Update: added 20180928_141312 UTC]
The CNBC is reporting Tesla's Musk pulled the plug on a settlement with the SEC at the last minute:
Tesla and the Securities and Exchange Commission were very close to a no-guilt settlement Thursday, reported CNBC's Andrew Ross Sorkin on Friday, citing sources. But, these people say Musk pulled out of the agreement at the last minute.
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. However, the settlement would have barred Musk as chairman for two years and would require Tesla to appoint two new independent directors, reported CNBC's David Faber, citing sources.
Musk reportedly refused to sign the deal because he felt that by settling he would not be truthful to himself, and he wouldn't have been able to live with the idea that he agreed to accept a settlement and any blemish associated with that, the sources said.
Tesla was not immediately available for comment.
Musk said Thursday the SEC's allegations are "unjustified" and that he acted in the best interests of investors.
(Score: 3, Informative) by Anonymous Coward on Friday September 28 2018, @12:52PM (13 children)
Read the SEC complaint. Tesla submitted a form saying that Musk's Twitter was an official source of company news.
(Score: 2) by RS3 on Friday September 28 2018, @01:45PM (12 children)
"Read the SEC complaint. Tesla submitted a form saying that Musk's Twitter was an official source of company news."
Thank you for that info. That's a shame. I think of Twitter as a place for people to blurt things at random will. As such I don't take tweets so seriously. I thought Musk's tweet was obviously a joke based on both the number 420's significance, and maybe some 420 was involved in the neural process leading up to the tweet. https://soylentnews.org/comments.pl?noupdate=1&sid=27032&page=1&cid=719648#719648 [soylentnews.org]
I wish people would stop being so absolute and literal and think about context more in life.
(Score: 2) by All Your Lawn Are Belong To Us on Friday September 28 2018, @02:45PM (11 children)
I agree with you that no Tweet should be taken seriously, ever. (IMVHO they shouldn't even be read.... but I'm just a hater there.) But even if it was a joke as the CEO he has a responsibility to know that investors can and do hang on his every word. He can't just do what he wants when he wants - not if it ends up damaging the company. Especially "jokes" which any reasonable person would know would make the stock price twitch - and this one made it "twitch" 11% from Friday to Monday.
And if you look at that Tweet [twitter.com], and more importantly his responses just on the first page, he makes several responses to several people that appear completely serious. Among them:
"Shareholders could either sell at 420 or hold shares & go private"
"Absolutely. Am super appreciative of Tesla shareholders. Will ensure their prosperity in any scenario."
"My hope is *all* current investors remain with Tesla even if we're private. Would create special purpose fund enabling anyone to stay with Tesla. Already do this with Fidelity's SpaceX investment."
Does that sound like somebody who just just kidding? Or reinforcement of it?
And the kicker was the "Funding Secured" lie - the former was probably good enough but the latter seals the deal that he told an outright lie which caused price to jump (whether it should have or not) - no better than a pump-and-dump email.
This sig for rent.
(Score: 2) by RS3 on Friday September 28 2018, @04:45PM (1 child)
Please know, I'm very grounded in reality and I get what you're saying. I'll just repeat myself: "I wish people would stop being so absolute and literal and think about context more in life."
Perhaps a limitation I have is that I have a good friend who really "gets" things. He understands context. He and I share a somewhat cynical / sarcastic view of pretty much everything in life. Part of that means we never take anything at surface value. We always look at context, for example.
When I heard of / read Musk's infamous tweet my first reaction was: he's just tweeting. To me it's like someone who talks to themselves, stuff just babbles out. My second reaction was: Musk is working 120 hours a week- he's so sleep-deprived he's sleep-talking. The third reaction was: maybe he's high. Forth: maybe he's sick of stock market pressure and wants to see what people think about him taking his baby private.
In fact, a proper reaction by the investment community would be: "okay, Musk tweeted that, but it's illegal to say those kinds of things, reveal that info, etc., so I better not ACT on it until something more official happens."
I just wish everyone would lighten up. The world has enough problems without people taking things so seriously and escalating problems. Wouldn't deescalation be better?
(Score: 2) by bob_super on Friday September 28 2018, @05:06PM
> "I wish people would stop being so absolute and literal and think about context more in life."
The problem is that if you're in for a few hundred millions shorting TSLA, when the CEO announces that he's got "funding secured" to raise the price one final time by 20%, you HAVE to react.
(Score: 2) by RS3 on Friday September 28 2018, @04:52PM (4 children)
I'll add: if SEC presses this, forces Musk out, maybe even imprisons him, I'm worried about the domino-effect. A lot of people will lose jobs, stock / investment money gone, overall productivity lost and resources / factories will be wasted, and it will be yet another big hit to the US and somewhat world economy.
I'd rather SEC make a formal policy: tweets are NO longer formal business announcements.
(Score: 2) by All Your Lawn Are Belong To Us on Friday September 28 2018, @05:22PM (1 child)
Commenting on both of the above.... I really do agree with you that people should learn to chill more, have better critical thinking skills, and that Twitter is a hyper-poor medium for communication of... well, anything, but particularly things which affect peoples lives including markets. Your take on the situation was a wise one IMO. And I sympathize with the idea that if one is basing major investment decision based on tweets there should be some level of caveat emptor. Our get-there-first-get-it-now-make-the-most-profit-possible culture causes real damage too as well as having benefits.
Reading the complaint, though, the government alleges two things that make me question the innocence of this.
First, they allege that Musk was in fact pursuing ideas to take the company private and had discussed same with the Tesla Board. So it wasn't like Musk was making something up out of whole cloth, and while 420 is a very steep premium indeed to where Tesla's price was it wasn't on the level of "one billionkajillionfarfillionquinashabalabarillion DOLLARS". Apparently a reporter even sent an email asking him if it was a pot joke or not. While one can speculate all day about motive, maybe he was actually trying to make that deal crystallize by having his Saudi interests read that there was funding already - to prod them to want to get something signed immediately. (If he'd been successful at such a strategy it still might have been not cricket, but probably a lot less bloody).
The other aspect is this 8K filing [tesla.com] where Tesla itself stated that Musk's Twitter pronouncements could be used to announce Tesla material information to the public. An investor thus should be able to rely on it, silly as it was. And the government incorporated that as part of its complaint to establish that this wasn't just Elon Musk saying something off the cuff (even though that carries risk, too).
It is a sad world, though, when there are those who rely on Twitter to understand what the powerful are thinking.
This sig for rent.
(Score: 2) by takyon on Saturday September 29 2018, @04:08AM
I wouldn't count on the situation improving, or people having better critical thinking skills.
Twitter is a medium for information. The design of Twitter might influence (degrade) the quality of the information, but if you are trying to make a quick buck, you probably wouldn't ignore it. And really, what was a misguided tweet became a major news story, because it was "official" and the premise seemed plausible (reefer 😉 to the events that happened in the week or so before the tweet).
[SIG] 10/28/2017: Soylent Upgrade v14 [soylentnews.org]
(Score: 2) by All Your Lawn Are Belong To Us on Friday September 28 2018, @05:28PM (1 child)
BTW, I reread and got that you got that bit about the 8K already -- didn't reread your parent and wanted to get the link to the actual 8K as well. But I do know you're capable of reading parent posts. ;)
Again, you're right, though that it is a waste. It should be an object lesson to all large publicly-held companies that they should be VERY careful in designating official channels of communication and who has those rights (including the CEO). (And Governments and their officials for that matter).
I wonder how much actual thought Elon Musk put into that tweet.... was it really just an off the cuff feeling?
This sig for rent.
(Score: 2) by RS3 on Friday September 28 2018, @06:19PM
Thanks for a great discussion. I agree on all points. As I've mentioned elsewhere on SN, and gotten downmodded (??), I'm a bit of a freedom of speech advocate. But for freedom of speech to work, listeners have to be less reactionary, and that's all I'm saying. I don't read twitter at all, other than tweets quoted somewhere in the news, but I've seen enough to know it's like Joe's blog, or someone's online journal. I guess I'm a bit surprised that a tweet has so much power. In fact, one of the only twitter accounts I glanced at a few times was "boredelonmusk". To me it all just seems like the homeless person talking to themselves. So to answer your question, I tend to think Musk didn't think about how seriously it would be taken, and I blame it on his horribly sleep-deprived state, and now it seems that some 420 could have been involved, so I'll call it an "off the puff feeling". (Popeye laughing sounds...)
(Score: 1) by khallow on Friday September 28 2018, @11:57PM (3 children)
But not the responsibility to care. Sorry, I don't think a CEO should carefully parse their words just because there are stupid people in the world.
And I don't even care if a CEO routinely says such things. The shareholders can police it themselves. I don't think there's a serious case for fraud here and the SEC should just get lost.
(Score: 2) by All Your Lawn Are Belong To Us on Saturday September 29 2018, @01:25AM (2 children)
A CEO should carefully parse every word they speak to the public. That's one of the reasons they get the big bucks.
What he ended up doing was causing price manipulation by deception, a form of securities fraud. The SEC were treating him with kid gloves compared to what they'd hit someone else with.
This sig for rent.
(Score: 1) by khallow on Saturday September 29 2018, @02:21AM
Or we can just not pander to fools. Sorry, I don't buy that a few ambiguous tweets constitute securities fraud or should do so. I get that relaxing such rules will result in some increase in fraud and whatnot. Increases in human freedom typically result in some increases in human bad behavior too. But such laws have perversely resulted in reducing the flow of information from CEOs and other business leaders to potential investors and customers.
(Score: 1) by khallow on Saturday September 29 2018, @03:24AM
Also, the problem is that this isn't necessarily a trait of a good CEO. If your industry is accounting or public relations then a shoot-from-the-hip CEO can be very damaging to the company. But there's many industries where key skills are communicating clearly and making decisions fast and decisively. A cautious CEO who is too worried about communication liability can be very harmful in those cases.
My view is that rules like what you allude to result in a lot of harm to the business world, such as encouraging a poisonous atmosphere of non-communication and creating a generation of risk-adverse business leaders.