Elon Musk accused of Securities Fraud

The Securities and Exchange Commission has filed a lawsuit accusing Tesla boss Elon Musk of securities fraud.

The US financial regulator says Mr Musk's claims that he had secured funding to take the electric carmaker private were "false and misleading".

Background

Tesla is an American automaker founded in 2003 by Elon Musk. It specializes in electric cars, lithium-ion battery energy storage and more. It is predominantly known for manufacturing luxury electric cars. In 2008, it released the world’s first electric sports car called the Tesla Roadster. One of its models, Model S has been the world's best-selling plug-in electric car in 2015 and 2016.

In countries like the US, the sale of electric cars has significantly increased. In 2016, the sale of electric vehicles in the US rose by 37%. California, in particular, was the biggest market for electric cars. Globally, the sales of electric vehicles have more than doubled since 2014. This was due to concerns over growing oil prices and the environment.

Elon Musk is a South African-born Canadian American business magnate, investor and inventor. He is listed by Forbes as the 53rd richest person in the world. As of January 2018, his net worth was $20.9 billion. Best known as the Founder, CEO and CTO of SpaceX, a private aerospace manufacturing and space transport services company, Musk is known for his aspiration to enable the colonization of Mars and reduce costs of space travel within the next two decades.

Analysis

The Securities and Exchange Commission (SEC) says Mr Musk's claims that he had secured funding to take the electric carmaker private were "false and misleading". It is seeking to bar Mr Musk from acting as an officer or director of a publicly traded company.

Mr Musk, who co-founded Tesla and has served as chief executive since 2008, is a divisive figure in the business world, who has inspired passionate fans and critics. "Integrity is the most important value in my life and the facts will show I never compromised this in any way," he said in a statement. Tesla's board of directors said in a statement that they were "fully confident in Elon, his integrity and his leadership of the company".

Mr Musk startled the business world last month when he took to Twitter to announce that he was considering a plan that would de-list the company from the stock exchange. He wrote he had "funding secured" for the proposal, which would value Tesla at $420 per share.

The statements "created the misleading impression that taking Tesla private was subject only to Mr Musk choosing to do so and a shareholder vote", according to the SEC complaint, which was filed in federal court in New York. "In truth and in fact Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source," it said.

The SEC statement said that, according to Mr Musk, he calculated the $420 price per share based on a 20% premium over that day's closing share price because he thought 20% was a "standard premium" when taking companies’ private transactions. The SEC, which is also seeking financial penalties, said his claims created "significant confusion" in the stock market and harmed investors.

Counterpoint

Mr Musk has always expressed his eccentric ideas on Twitter while making large claims. Although the August 7th tweet which described his plan to take Tesla, private, was a massive financial decision, it was not made through Tesla’s official social media team or their public relations team.

In recent months, Mr Musk's own behaviour has also been in the spotlight. He drew attention after an emotional interview with the New York Times, in which he said he worked "120-hour weeks" and took sedatives. And earlier this month, he smoked marijuana live on the web during a podcast with comedian Joe Rogan.

Assessment

Our assessment is that the SEC charging Elon Musk over a tweet signals a shift in scrutiny and public accountability of CEOs. The complaint clearly outlines that Mr Musk’s tweet resulted in harm to investors and drove Tesla’s stock prices higher without any additional financial gains in the preceding quarter.  We believe that this case will define the role of social media as a tool for companies to use more responsibly.