SEC Sues Elon Musk For Fraud – Quite Right Too

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That Elon Musk is a gloriously talented entrepreneur is entirely true. I’ve had a very brief interaction with him and was impressed. That Elon Musk has a certain talent at subsidy sucking is also true. As is the thought that he really shouldn’t have said, on Twitter, what he did say:

The Securities and Exchange Commission has filed a lawsuit accusing Tesla boss Elon Musk of securities fraud.

The US financial regulator says Mr Musk’s claims that he had secured funding to take the electric carmaker private were “false and misleading”.

It is seeking to bar Mr Musk from acting as an officer or director of a publicly traded company.

Whether they’ll go through with a ban if they gain a conviction, well. But he really shouldn’t have said it:

The SEC case, filed in New York this afternoon, alleges the Tesla billionaire made “false and misleading statements” in his now infamous 7 August tweet.

Musk tweeted his plans to take Tesla private at $420 per share, with “funding secured”.

Funding wasn’t secured, that’s a misleading statement to the markets:

Tesla’s shares shot up 11% on the news, but it transpired that Musk had only had preliminary talks about taking the troubled company private and that funding had not been secured.

Just not something you’re supposed – or allowed – to do when running a publicly listed company.

Our non-resident expert on such securities law (and much else) is Craig Pirrong, otherwise the Streetwise Professor:

I was amused that Morgan Stanley had announced Thursday that it was advising Musk on the going private plan, and then Musk pulls the plug about 40 hours later. Does it really take that long to say “are you out of your fucking mind?” Or did it take them that long to recover from the giggles? Or maybe Elon just sat on the bad news from MS until he could release it with the least attention possible.

The only real questions remaining are: (a) what caused Elon’s synapses to conceive of this brilliant plan?, and (b) will there be legal consequences?

Insofar as (a) is concerned: LSD? Lack of sleep? Impending mental breakdown? Or was there something more desperately Machiavellian about it? Regardless, I can’t think of an explanation that bodes well for Tesla.

With regards to (b). It is so blindingly obvious now (and should have been from word one) that his announcement Tweets were materially false. They had large impacts on the price of Tesla stock. They followed years of other dubious announcements, both on Twitter and in SEC filings and investor disclosures. If the SEC lets this slide it will make a mockery of the securities laws, and suggest that there are different standards for some people.

Some have suggested that the SEC is reluctant to take actions that will kill Tesla, or crater its stock price. Well, why should Tesla be any different than other companies? SEC actions have cratered other firms. (Dynegy is an example that comes to mind.) The stock price falls were features, not bugs. The SEC actions cratered these other firms because they revealed widespread wrongdoing and material falsity in corporate disclosures that had caused stock prices to be greatly inflated. Why would the SEC want to perpetuate inflation in Tesla’s stock price? If the stock price can’t handle the truth, well, that would be the problem that the SEC is supposed to be addressing, wouldn’t it?

Once again an actual expert on a matter is proven correct. Isn’t that a surprise?