Tesla

Elon Musk Sued by SEC Over Securities Law Violations For Tweets

The SEC wants to bar Musk from being an operator or director of any publicly held company for claiming he had a firm offer to take Tesla private at $420 a share.

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The Securities and Exchange Commission (SEC) filed suit today in U.S. District Court for the Southern District of New York against Elon Musk, the billionaire industrialist trying to lead mankind to a world of electric cars, solar power, and life on Mars via his companies Tesla, SolarCity, and SpaceX.

y TeslaClubBE on Foter.com / CC BY

Musk's offense was allegedly making "false and misleading" public statements, specifically tweeting on August 7 that he'd "secured" funding to take his electric car company Tesla private at $420 a share. He later mentioned a specific Saudi Arabian sovereign wealth fund that was supposedly going to do the funding at that price.

Musk later said that imagined price was a result of applying a personal eccentric calculation based on that day's closing price plus an instant 20 percent premium, plus rounding up to a number that's a notorious marijuana code word because he thought his girlfriend, pop star Grimes, "would find it funny."

The SEC insists in its court filing that despite the tweet "In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source" and further that Musk "had not determined what regulatory approvals would be required or whether they could be satisfied."

"The Commission brings this action against Musk pursuant to Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)] to enjoin the transactions, acts, practices, and courses of business alleged in this Complaint and to seek orders of disgorgement, along with prejudgment interest, civil penalties, and an officer and director bar against Musk, and such further relief as the Court may deem appropriate," the complaint says. They want a jury trial.

That Musk's tweet could violate securities law was much discussed the week it happened, and has generated at least three private shareholder lawsuits as of last month, one of which argued that "Musk's tweets were an ill-conceived attempt to manipulate the stock price of Tesla upward in order to burn investors who had sold Tesla stock short."

As Wired reported last month:

securities law requires that public companies make certain sorts of information public to all their shareholders at the same time. And that said information be true. Anything less could be construed by courts (and juries) as fraud or market manipulation…Sure, anyone investing in Tesla should know Musk says all the juicy stuff on Twitter. And the Commission has allowed companies to disclose information on social media in the past, provided other shareholders are alerted in some other way. In the eight days since Musk tweeted about taking Tesla private, the automaker has not filed paperwork to disclose a material event or disclosure, the kind of big deal happening that all shareholders need to know about.

As with many securities laws, these seem to demand some form of universal instant spread of knowledge to everyone potentially concerned that is impossible in practice, and which shifting actual stock prices come the closest to actually realizing.

According to the SEC's own complaint, the company as far back as 2013 "publicly filed a Form 8-K with the Commission stating that it intended to use Musk's Twitter account as a means of announcing material information to the public about Tesla…and has encouraged investors to review the information about Tesla published by Musk via his Twitter account."

The public response from Musk to the SEC suit, as reported by The New York Times, is that "This unjustified action by the S.E.C. leaves me deeply saddened and disappointed. I have always taken action in the best interests of truth, transparency and investors. Integrity is the most important value in my life and the facts will show I never compromised this in any way."

The SEC asserted that "Musk's false and misleading public statements and omissions caused significant confusion and disruption in the market for Tesla's stock and resulting harm to investors." While on the subject of disruption and harm to investors, upon the SEC's filing this civil suit against Musk today, Tesla stock fell around 10 percent. The Department of Justice is also looking into possible criminal implications of Musk's impolitic tweeting.

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    1. That scam-artist has done worse than that:

      “Tesla got $295M in subsidies for technology it didn’t offer”
      […]
      “Tesla claimed the credits between 2012 and mid-2014 ? part of a program designed to encourage the carmaker to promote its new battery-swap technology. The program did not require evidence the company actually provided the service.
      “What they were getting (the credits) for was the demonstration that they had a workable technology. And they do,” said Dave Clegern, spokesman for the California Air Resources Board. “It was demonstrated (by Telsa). They had it at a Tesla facility in California; we went there and saw it.”…
      https://www.watchdog.org/california/tesla-got
      -m-in-subsidies-for-technology-it-didn-t/article
      _16c9814c-8176-5a03-a595-8cf0e2119455.html

      No, they didn’t ‘see that’. Here’s what they saw:
      https://www.tesla.com/videos/battery-swap-event

      And right after that bit of legerdemain, Musk pulled a rabbit out of his hat.

      1. out of his hat? Maybe somewhere else?

      2. No, they didn’t ‘see that’. Here’s what they saw:
        https://www.tesla.com/videos/battery-swap-event

        Which, itself, isn’t that impressive as the guy at the gas station puts ~650 mi. worth of gas in his tank in the time it takes Elon and Tesla to put ~300 mi. worth of power in to two separate vehicles. He even states the fastest station they found was 10 gal. per minute which, if you get 30 mi. to the gallon, means the Tesla would have to charge up to 300 mi. range in a minute or less, which it doesn’t do. If you get closer to 40, 50, or 60 mpg, it isn’t even a contest.

        Not that any of it has anything to do with electric vs. ICE. You could similarly switch gas tanks. The big advantage comes from the logistics in that the Tesla owner starts ‘refueling’ while the Audi driver is paying up front.

    2. His Hyperloop would be a better target for a fraud investigation.

      1. Is that still being talked about as a serious thing?

        1. Musk still talks about it as a serious thing.

  1. Is Musk purposefully self-destructing or is he or has he gone insane?

    1. There is a thin line between insanity and genius. Some people wobble back and forth over the line.

      1. Just like there’s a thin line between stupid and clever.

        And some people wobble back and forth over that one too.

    2. *Wants to take his company private again*
      *Stock prices are too damn high*
      *Says crazy shit and deliberately smokes a fat gagger on a video podcast in front of the whole world*
      *”Hey shareholders, I’m runnin the company and I’m cra-zy”

      Pretty sure the SEC knows exactly what he’s up to. It’s just hard to prove.

    3. Does promoted to incompetence fit into either category? What if you promoted yourself?

      Musk isn’t actually that eccentric, genius, or great of a showman. He’s certainly not a dime a dozen, but it’s not like he’s propping up Hollywood movies and actresses while raping them on the side.

  2. Get with the program! Nowadays you can just say whatever crazy shit you want and if people take it seriously, well that’s on them. “They trust me. Dumb fucks.”

  3. If there’s anybody that likes to make the headlines more than Elon Musk, it’s the SEC.

    Guess Martha Stewart isn’t in the headlines like she used to be and they couldn’t find anything on Rachel Ray.

    1. Adults do not permit disaffection to excuse fraud. Adults can handle this.

    2. If there’s anybody that likes to make the headlines more than Elon Musk, it’s [government thugs].

  4. Looking for a good guy in this kerfuffle and not finding one.

    1. Then leave the judgments to those with sound judgment.

  5. Elon is fucked. I love the guy, especially Space X because I grew up a space nerd and even went to Space Camp in the late 80s, but he has been manipulating the stock via his stupid tweets for a while now. Selling a stock short is a legitimate market activity, but it has been driving him insane (Tesla is one of most heavily shorted stocks on the market). He tweets stupid bullshit and the stock bounces and the shorts get taken out, and then the cycle repeats. No one doubts you are a smart guy Elon, but if someone thinks your company is overvalued because it has a higher market capitalization than either Ford or GM, and there are a hell of a lot more Fords and GMs on the road than Teslas, deal with it. Being an investor myself I think the SEC is totally right, in this instance. He dug that hole himself – I predicted something like this would happen months before his stupid $420 private buy out announcement.

      1. Well, look who doesn’t want to be a judge, ever.

      2. I had my growth spurt early, so people didn’t fuck with me because I was half a foot taller than them until the end of high school.

        1. That just makes you easier to take down.

  6. Does anyone know if the government has always been able to bring a lawsuit against a citizen? In this example, how is the SEC damaged by Musk? The SEC employees will get their paychecks next month regardless of the outcome. What’s the libertarian position on the government suing its citizens?

    Seems to me the government should stick to prosecuting crimes of which fraud, as asserted here, is one.

    1. Individual investors are damaged by Musk. I’m not a fan of the SEC, but if I shorted Tesla and the stock spiked because Elon tweeted some bullshit story about the company being taken private, I’d be mad as hell. If there’s no truth to it, it’s not much different than Worldcom inflating revenues with bogus accounting entries. Tesla isn’t Worldcom, and Elon isn’t Bernie Ebbers, but making up bullshit news to increase your stock price, or keeping it from going down, is against the rules.

      1. It’s perfectly legal to gamble with investments, but that’s not investing. If a Worldcom CFO drunkenly and falsely said “revenues are up again this quarter” at a bar, that would be more comparable to Musk’s tweet.

        1. the company as far back as 2013 “publicly filed a Form 8-K with the Commission stating that it intended to use Musk’s Twitter account as a means of announcing material information to the public about Tesla…and has encouraged investors to review the information about Tesla published by Musk via his Twitter account.”

          Yes, indeed, very comparable to drunkenly and falsely saying something in a bar, if the bar had 300 million people in it, and you told the SEC that’s where you are announcing material information about your company.

  7. Musk needs to hire an adult to do the ceo stuff so he can focus on whatever random thing he wants, it is weird to me that he was smart enough to do that with spacex, but not with Tesla…

    Perhaps it was an experiment to see if he could adult?

  8. Did they announce the suit on Twitter?

    In seriousness, though, it seems like his tweet not being true is more likely to get him in trouble than it being a tweet instead of some other, more traditional form of announcement.

  9. When I first saw it, I thought it was obviously a joke. But “the market” took it “seriously” and the price spiked like it was a real press release or something.

    If Musk gets removed as CEO of Tesla, the stock price will half overnight and then eventually settle below $100 where it belongs.

    I say that, but that stock is super unpredictable and damned near un-trade-able, so it could do anything really.

    1. Still kicking myself for not getting in on it.

    2. Tesla had a great start. They had a 3-5 year jump on everyone else in the electric car business, and everything else that came out back then was horse shit. Now the competition has worked out most of the bugs, and he is still late delivering cars. His next breakthrough will hopefully be battery life and storage, and if they can get to the point where the car goes 500 miles on a charge, Tesla might have a chance. Otherwise they might be in real trouble now that other automakers have figured out how to make decent electric cars.

      1. Which is why EV’s are still a miniscule fraction of total sales. And they still haven’t solved the charging time problem. Fun math:

        Assume a 100kWh battery back at depletion (makes the math a little easier than 85)
        Assume a 5min charging time (comparable to fueling a gas car)
        5m=0.0833333 hr
        100kWhr/.0833333hr = 1200kW = 1.2MW of power

        Now how much current is that and what size conductor is needed?
        100V = 12kA = more than 2000 kcmil (2000 inch cross sectional area so sqrt of that diameter)
        500V = 2.4kA = more than 2000 kcmil (so imagine what the one above really is…)
        1kV = 1.2kA = more than 2000 kcmil (hmmm, noticing a trend?)
        2kV = 600A = 1000 kcmil (hot damn, we’re down to 1000)
        5kV = 240A = 4 gauge which is probably barely manageable

        1. You forgot the multiple of how often a 5 minute recharge is relevant – pick your fractions to multiply: single trips greater than 100kWh of range away, inability to coincide with a typical-enough mealtime and inability/unwillingness to shift time of travel. So, yes, the problem exists, and it’s both tiny and easy to avoid.

          1. The problems do not got away. The battery pack is good for about 300mi on a full charge under absolutely ideal conditions (not the typical case in much of the country). That sort of range on a gas car means refueling at least once every week, or about one fifth depletion every day. Divide my numbers by an order of magnitude and it doesn’t change the problem to any significant degree.

            1. I still come back to the fact that recreational vehicles (as opposed to commuter vehicles, not RVs) are a thing. Motorcycles are used the world over in cultures much less culturally and even physically/geographically car oriented. Electric motorcycles *still* aren’t a thing.

              The 5 min. charge time is attainable into the future.

              1. Aw hell, < 1 min. refueling times have been possible for at least a couple of decades.Also, 'inability to coincide with a typical-enough mealtime'? Multiple billion-dollar franchises have been built around serving people food in their cars.

  10. While on the subject of disruption and harm to investors, upon the SEC’s filing this civil suit against Musk today, Tesla stock fell around 10 percent

    …whereupon the SEC was immediately sued by the SECC.

  11. Although I don’t think he should be banned from being the CEO for this… It is kind of a bullshit move. I mean if he had an “I kid, I kid!” at the end of it, fine. But the specific wording there is kind of not cool. People who take on investors, whether private or public, have a legal duty to perform to a certain standard. That standard doesn’t include making up shit and publicly saying it in a manner than implies it is factual.

    Elon is a weird guy. I kind of want to like him, because he does/says SOME cool stuff… But then other times he is a total fuck wad. Sometimes his politics seem to be good, and other times he’s a total dirt bag. He’s just all over the map.

    1. He does/says some stuff that would be cool if it were possible, but 99.99% of it isn’t.

    2. He does/says some stuff that would be cool if it were possible, but 99.99% of it isn’t.

      1. Well, not now… But some of it may well be over the coming decades. I mean everybody was LOLing at private space ventures when they first deregulated things and opened space up to companies… It’ll never work! They don’t have the money to develop rockets like NASA! Etc.

        Then within a few years they had produced rockets that got payloads into space for a fraction of what NASA/Russian rockets did. Now they’re producing tech that NASA never got done period for any amount of money. Some of his other stuff could pan out the same way. I do rather like the idea of The Boring Company actually. I’ve long thought that tunnels or raised roads/rail stuff is a rather obvious, if somewhat expensive, solution to commuting issues in many places.

        We’ll see I guess!

  12. oh geez nobody saw that coming. lovely day when I don’t have to hear about that idiot again.

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