Tesla shares plummeted this morning after the Securities and Exchange Commission (SEC) filed a lawsuit Thursday night against CEO Elon Musk for securities fraud, alleging Musk made “false and misleading tweets about a potential transaction to take Tesla private.”
Last month, Musk tweeted that he had funding secured to take Tesla private. “Am considering taking Tesla private at $420,” the CEO tweeted around 1 p.m. “Funding secured.”
The SEC claims that Musk knew that such a deal was “uncertain and subject to numerous contingencies.” Most damaging of all was that Musk’s announcement led to “significant market disruption” — Tesla’s stock rose by more than six percent on August 7, the day of the tweet.
Filed in federal court in the Southern District of New York, the SEC complaint seeks to bar Musk from serving as an officer or director of a public company because of antifraud violations. Tesla was not named in the suit.
In the complaint, one of the charges against Musk is how he chose the $420 value — as that number is generally a weed culture slang term to refer to marijuana — and whether or not Musk was actually serious.
“According to Musk, he calculated the $420 price per share based on a 20% premium over that day’s closing share price because he thought 20% was a ‘standard premium’ in going-private transactions,” reads the complaint. “This calculation resulted in a price of $419, and Musk stated that he rounded the price up to $420 because he had recently learned about the number’s significance in marijuana culture and thought his girlfriend ‘would find it funny, which admittedly is not a great reason to pick a price.'”
Musk’s erratic behavior online has also made some Tesla board members extremely unhappy, according to the New York Times’ profile of the CEO. Odd behavior — including bizarre late night tweets, eyebrow-raising encounters with hip-hop star Azealia Banks, and Musk’s smoking marijuana on Joe Rogan’s televised podcast — Musk’s actions have taken a toll on Tesla’s performance in the stock market, leading to multiple key figures such as Chief Accounting Officer Dave Morton and Chief People Officer Gaby Toledano to leave their posts.
Yet the Tesla board defended Musk Thursday evening, after news of the suit came in: “Tesla and the board of directors are fully confident in Elon, his integrity, and his leadership of the company, which has resulted in the most successful U.S. auto company in over a century. Our focus remains on the continued ramp of Model 3 production and delivering for our customers, shareholders and employees.”
However, without Musk’s cult of personality, it is hard to gauge how well Tesla would do on its own. If the SEC does succeed in barring Musk from serving as CEO of a public company, it wouldn’t just be the end of his tenure at Tesla. It would also mean that his other companies — Space X, NeuraLink and The Boring Company — could not go public with him as CEO. Additionally, Musk would face financial sanctions for his misleading tweet.
“This unjustified action by the SEC leaves me deeply saddened and disappointed,” Musk said in a statement to CNBC. “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.”
ORIGINALLY PUBLISHED ON SALON.