The US Securities and Exchange Commission accused Tesla chief executive Elon Musk on Thursday of fraud and sought to remove him from his role as the head of the electric car company, saying he made a series of “false and misleading” tweets about potentially taking Tesla private last month, according to a report in Reuters.
The Department of Justice, which has the authority to press criminal charges, has also questioned the company about Musk’s tweets, Tesla said this month.
Musk said he had done nothing wrong. “This unjustified action by the SEC leaves me deeply saddened and disappointed,” he said in a statement. “Integrity is the most important value in my life and the facts will show I never compromised this in any way.”
Tesla’s board said they are “fully confident” in Musk.
The SEC’s lawsuit, filed in Manhattan federal court, caps a tumultuous two months set in motion on Aug. 7 when Musk informed his 22 million plus Twitter followers that he might take Tesla private at $420 per share, with “funding secured”.
Post the news of the SEC probe had become known, Musk blogged that Tesla would remain public, citing investor resistance.
The Wall Street Journal reported on Thursday that the SEC filed the lawsuit after a proposed settlement with Musk fell apart. The SEC did not immediately respond to a request for comment to Reuters, late on Thursday.
In its lawsuit, the SEC said Musk calculated the $420 price per share based on a 20 percent premium over that day’s closing share price and because of the number’s slang reference to marijuana, reported Reuters.
According to the report, the lawsuit, which cites emails and text messages between Musk and Tesla executives, quoted Musk as saying he thought his girlfriend “would find it funny, which admittedly is not a great reason to pick a price”.
After the initial tweet, Tesla’s chief financial officer asked Musk “would it help” if executives drafted a blog post or employee email to explain his tweet. Musk responded, “Yeah, that would be great.”
Musk had not discussed the $420 figure with any potential funding source before he broached the subject to Tesla’s board in an Aug. 2 email, the SEC said as per Reuters report.
The SEC lawsuit comes as Tesla has been struggling to deliver its new Model 3 sedan, which is key to the company’s future profitability, after a long series of production issues and delays, said Reuters.
According to the SEC, Musk “knew or was reckless in not knowing” that his tweets about taking Tesla private at $420 a share were false and misleading, given that he had never discussed such a transaction with any funding source.
The SEC said Musk met for less than an hour with three representatives of Public Investment Fund, at the company’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,” according to the lawsuit.
Musk acknowledged the meeting lacked discussion of “even the most fundamental terms” of the deal and nothing was set in writing, according to the lawsuit. A week later, Musk announced his plan to the world without having discussed the matter again with the fund or looked at many of the logistics of going private, the SEC said.
According to Reuters report, the SEC also said that Musk did not communicate with the fund representatives again until three days after his tweets.