Elon Musk Is Getting Sued For Being A Fraud, And Might Be Forced Out As CEO Of Tesla And SpaceX

Earlier in August, Tesla CEO Elon Musk declared in a tweet:

Am considering taking Tesla private at $420. Funding secured.

¡ª Elon Musk (@elonmusk) August 7, 2018

Ghost funding

Some time after his initial tweet, Musk had claimed he¡¯d found a private investor in Saudi Arabia¡¯s Sovereign Wealth Fund, and all it would take to de-list Tesla was the approval of shareholders. The SEC however claims, as was widely suspected, that there was never any funding.

¡°In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source,¡± prosecutors wrote in the complaint. They say Musk¡¯s tweets to the contrary (and others after) were ¡°false and misleading.¡±

¡°Musk knew or was reckless in not knowing that each of these statements was false and/or misleading because he did not have an adequate basis in fact for his assertions,¡± the complaint elaborates.

Immature jokes

Musk had also said that he thought 20 percent was a ¡®standard premium¡± when taking companies private transactions. As such, he reached a calculation of $420 per share based on 20 percent of that day's (the tweet¡¯s) closing share price. The SEC doesn¡¯t buy that. They¡¯re also not too pleased at Musk¡¯s explanation of rounding up the price from $419 to $420 because his girlfriend at the time (Canadian singer Grimes) would think the weed reference was funny.

Also Read: Elon Musk Smoking A Blunt Isn't A Big Deal But There Is A Bigger Issue At Stake Here

The fallout

Musk, for his part, has called the SEC action unjustified and expressed his disappointment. ¡°I have always taken action in the best interests of truth, transparency and investors,¡± he said in a statement to BuzzFeed. ¡°Integrity is the most important value in my life and the facts will show I never compromised this in any way.¡±

The SEC isn¡¯t impressed however and is quick to point out that, though Tesla stock rose after the August 7 tweet, the following chaos and uncertainty eventually harmed those same shareholders.

Whether Musk intends to try and settle or fight this case all the way through is still unclear. Most likely though, it¡¯s resolution will take a long time. How that reflects on Tesla¡¯s stock will probably not be great. More importantly, it might be time for Musk to worry about whether the Tesla board is thinking of replacing him as CEO, not to mention SpaceX and Boring Company.