Update: Elon Musk agreed to step down as Tesla’s chairman, and will personally pay a $20 million fine as a part of a settlement with the SEC on Saturday. Tesla is also paying a $20 million fine and will add two new independent directors to its board. Musk will remain Tesla’s CEO.
Elon Musk, the founder and chief executive officer of electric car company Tesla, is in serious legal trouble.
On Thursday, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Musk, charging him with making a “series of false and misleading statements” to investors.
Tesla’s stock fell more than 12% when markets opened Friday morning.
The legal charges stem from a tweet that Musk sent in August, saying that he had secured funding from outside investors to take Tesla private at a valuation of $420 a share—about 20% higher than its trading price at the time, according to the lawsuit. The day Musk sent the tweet, the company’s stock closed up about 7%.
The tweet turned out to be false, however, and no funding to buy the company materialized. The company’s stock price has since fallen about 30%.
The SEC is the federal regulatory body that oversees publicly traded companies. The SEC seeks to remove Musk from his role as CEO of Tesla and to prevent him from leading a public company ever again.
The action against Musk is considered by some experts to be one of the most serious undertakings by the SEC against a large public company in some time.
“We allege that Musk’s statements were false and misleading because they lacked any basis in fact,” said Stephanie Avakian, co-director of the SEC’s Division of Enforcement, at a press conference Thursday, according to USA Today.
- Tesla has been public since 2010, and the tweet, according to some experts, was related to investors who were betting against the company’s stock, in a tactic called short selling.
- When investors short a stock, they hope to profit from the falling value of its share price.
- Musk’s tweet in August temporarily sent the stock up.
- Tesla remains a public company.
Details about Musk and Tesla
- Musk founded Tesla in 2003.
- Tesla went public in 2010, raising $223 million for the company.
- The company’s stock rose overall in the years following its IPO.
- But the stock has since fallen due to production problems, and missed delivery deadlines for its automobiles.
- Elon Musk is considered one of Silicon Valley’s most brilliant and innovative entrepreneurs. In addition to co-founding the payments company Paypal, he also founded the space exploration and transportation company SpaceX.
- In recent months, Musk has been criticized for so-called erratic behavior in public, including a tearful interview with the New York Times, and appearing to smoke marijuana during a podcast.
In a statement reported by CNBC, Musk contested the SEC lawsuit.
“This unjustified action by the SEC leaves me deeply saddened and disappointed,” Musk said. “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.”