DETROIT — U.S. securities regulators are asking a federal court to oust Tesla Inc.’s Elon Musk as chairman and CEO, alleging in a complaint that he committed securities fraud with false statements about plans to take the company private.
The Securities and Exchange Commission says in the complaint filed Thursday that Musk falsely claimed in an Aug. 7 statement on Twitter that funding was secured to go private at $420 per share, a substantial premium over the price at the time.
The complaint filed in U.S. District Court in Manhattan says that Musk had not discussed or confirmed key deal terms including price with any funding source. It also asks for an order enjoining Musk from making false and misleading statements along with repayment of any gains as well as civil penalties.
“Corporate officers hold positions of trust in our markets and have important responsibilities to shareholders,” Steven Peikin, co-director of the SEC’s Enforcement Division, said in a statement. “An officer’s celebrity status or reputation as a technological innovator does not give license to take those responsibilities lightly.”
An SEC press release said the agency asked the court for a “bar prohibiting Musk from serving as an officer or director of a public company.”
Musk, in a statement issued by Tesla, called the SEC action unjustified. “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,” the statement said.
Effect on investors
The complaint alleges that Musk’s tweet harmed investors who bought Tesla stock after the tweet but before accurate information about the funding was made public.
Ousting Musk, who has a huge celebrity status with more than 22 million Twitter followers, would be difficult and could damage the company. He’s viewed by many shareholders as the leader and brains behind Tesla’s electric car and solar panel operations.
Peter Henning, a law professor at Wayne State University and a former SEC lawyer, said Musk is among the highest-profile CEOs in recent memory that the commission has gone after with this stiff of a penalty threat.
“You’ve got one of the iconic CEOs of the day who is being threatened with removal from office. They can’t strip of him of his shares but they can keep him out of the C-suite,” Henning said.
Joseph Grundfest, a professor at Stanford Law School and former SEC commissioner, said Musk will likely want to settle before trial so that he could conceivably stay on as CEO, with some constraints such as prohibiting him from making public statements without supervision. But Musk also could agree to step down as CEO and instead take another title, such as chief production officer.
“One possibility could be to appoint someone as a monitor over all of his communications. He wouldn’t be able to tweet or post anything directly without the approval of a chaperone,” Grundfest said. “He is not going to be able to remain as CEO with no conditions. That is not on the table.”
Grundfest also said that the challenge for the SEC is to “appropriately discipline Musk while not harming Telsa’s shareholders.”
According to the complaint, Musk met with representatives of a sovereign investment fund for 30 to 45 minutes on July 31 at Tesla’s Fremont, Calif., factory. Tesla has identified the fund as Saudi Arabia’s Public Investment Fund, which owns almost 5 percent of the company.
Fund representatives expressed interest in taking Tesla private and asked about building a factory in the Middle East, Musk told the SEC. But at the meeting, there was no discussion of a dollar amount or ownership stake for the fund, nor was there discussion of a premium to be paid to Tesla shareholders, the complaint said. Musk told the SEC that the lead representative of the fund told him he would be fine with reasonable terms for a go-private deal.
“Musk acknowledged that no specific deal terms had been established at the meeting and there was no discussion of what would or would not be considered reasonable. Nothing was exchanged in writing,” the complaint stated.
The SEC alleged in the 23-page complaint that Musk made the statements using his mobile phone in the middle of a trading day. That day, Tesla shares closed up 11 percent from the previous day. Musk has said that he posted the go-private tweet while driving to the airport and that no one reviewed it.
