SEC sues Musk for civil fraud and demands his removal from Tesla

The Securities and Exchange Commission has sued Elon Musk for knowingly making false statements to the public about a potential buyout deal for Tesla. In its Complaint, the SEC calls for Musk to pay civil penalties and be barred from being an officer or director of a public company. The complaint referred to Musk’s Aug. 7 statement on Twitter when he told his more than 22 million Twitter followers that he might take Tesla private at US$420 per share, and that there was “funding secured.” The SEC says that Musk “knew or was reckless in not knowing” that his tweets about taking Tesla private at US$420 a share were false and misleading, given that he had never discussed such a transaction with any funding source.

The Complaint alleges that Musk met for less than an hour with three representatives of Public Investment Fund, at Tesla’s Fremont, California, plant on July 31 during which the lead representative for the Saudi Arabian sovereign wealth fund expressed interest in taking Tesla private if the terms were “reasonable.”

On Aug. 24, Musk stated that Tesla would remain public, citing investor resistance.

The SEC does not have criminal enforcement powers. Musk will remain as Tesla’s CEO until the matter was settled legally.

The SEC says Musk calculated the US$420 price per share based on a 20 percent premium over that day’s closing share price.

The suit seeks to bar Musk from serving as an executive or director of publicly traded companies like Tesla.

The call to bar Musk as an officer of any public company is unusual for the SEC against the CEO of a well-known firm. It is unlikely that this will happen and highly likely that the case will be settled for a monetary payment.

Musk has frequently used Twitter to criticize short-sellers betting against his company.