Tesla shares dive after SEC lawsuit alleges Elon Musk’s $420 tweet was a pot reference to impress his girlfriend
Shares of Tesla Inc dived 11 per cent in early trading on Friday after U.S. regulators accused chief executive Elon Musk of fraud and sought to remove him from his role in charge of the electric car company.
The U.S. Securities and Exchange Commission said in a lawsuit that Musk had made a series of false and misleading statements and caused volatility in the company’s shares with tweets last month which raised the potential of taking Tesla private before swiftly withdrawing the idea.
The SEC’s lawsuit, filed in Manhattan federal court, caps a tumultuous two months set in motion on Aug. 7 when Musk told his more than 22 million Twitter followers that he might take Tesla private at US$420 per share, with “funding secured.”
The regulator charged that Musk “knew or was reckless in not knowing” that his tweets were false and misleading and that the chief executive officer tweeted the figure to impress his girlfriend, the rapper Grimes.
“While leading Tesla’s investors to believe he had a firm offer in hand, we allege that Musk had arrived at the price of $420 by assuming 20 per cent premium over Tesla’s then existing share price then rounding up to $420 because of the significance of that number in marijuana culture and his belief that his girlfriend would be amused by it,” Steven Peikin, co-director of the SEC’s enforcement division said.
Without disputing the reference to cannabis, Musk was quick to criticize the SEC’s decision to bring an enforcement action.
“This unjustified action by the SEC leaves me deeply saddened and disappointed,” Musk said in an emailed statement. “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.”
Musk, 47, is the public face of Tesla and J.P. Morgan analyst Ryan Brinkman questioned how easy it would be for the US$50-billion manufacturer, which is still losing money, to raise funds at affordable rates without him.
“We are concerned that decreased confidence in Tesla on the part of investors may impact the company’s ability to raise capital on amenable terms,” Brinkman said.
Four early research notes from Wall Street analysts and brokerages all said that Musk might have to resign.
The Silicon Valley billionaire said overnight he had done nothing wrong and Tesla’s board reiterated its support for him.
“The SEC civil action may lead to Musk’s exit from Tesla (either permanently or temporarily) and the Musk premium in the shares dissipating,” Barclays analyst Brian Johnson said.
Shares were last down 12.5 per cent at US$268.93 in trading before the bell in New York, which would wipe more than US$6 billion off Tesla’s market value.
Gene Munster, managing partner at venture capital firm Loup Ventures, said the lawsuit adds further distraction at a critical 6-month juncture in the company’s viability.
“Despite this, we think the company will survive,” he said.
Jeffrey Osborne, an analyst at brokerage Cowen, said investing in Tesla equity and bonds over the past few weeks had been “a game of choose your own adventure.”
“The ball is in the Board’s court now and it remains to be seen what will happen next,” he said.
© Thomson Reuters 2018