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SEC Sues Tesla CEO Elon Musk for Lying to Investors

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【Summary】The Securities and Exchange Commission, the government agency responsible for enforcing the federal securities laws and protecting investors, sued Tesla chief Elon Musk on Thursday, saying he lied to investors when he claimed he had secured the funding to take the automaker private.

Eric Walz    Sep 27, 2018 2:09 PM PT
SEC Sues Tesla CEO Elon Musk for Lying to Investors
author: Eric Walz   

The Securities and Exchange Commission, the government agency responsible for enforcing the federal securities laws and protecting investors, sued Tesla chief Elon Musk on Thursday, saying he lied to investors when he claimed he had secured the funding to take the automaker private.

In a complaint filed in a Manhattan federal court, federal regulators said "Musk's false and misleading public statements and omissions caused significant confusion and disruption in the market for Tesla's stock and resulting harm to investors."

"This unjustified action by the SEC leaves me deeply saddened and disappointed," Musk said in a 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."

In a tweet on August 7, Musk wrote on the social media platform that he secured the necessary funding to take Tesla private at $420.00 a share. His tweet made waves on Wall Street and sent Tesla's stock price down nearly 30 percent in the weeks after. Musk said later that the source of the funding was Saudi Arabia's PIF, which invests in aerospace, energy and green technologies with a strong focus on renewable energy and related sectors. However, negotiations for deal fell through and the PIF ended up investing $1 billion in Tesla rival Lucid Motors.

Tesla stock has been one of the most well loved stocks by investors looking to make a profit on the electric automaker and those looking to cash in by short selling. Tesla is one of Wall Street's most shorted stocks. According to the latest data from Kiplinger, 34.7 million shares of Tesla were held as a short position, or nearly 30% of the total shares in investors' hands.

Musk's public spats with Tesla short sellers are well publicized. In what is believed to be the first lawsuit over the tweet, a Tesla shareholder in California has filed a lawsuit against Tesla and Elon Musk. The suit is seeking class-action status over Musk's statement that he wants to return the car maker to private ownership at a $420 per share.

The legal filing in California states that Musk schemed "to artificially manipulate the price of Tesla stock to completely decimate the company's short sellers". It was filed in the U.S. District Court for the Northern District of California in San Francisco by shareholder Kalman Isaacs.

Tesla Motors, the company's name at the time, launched its initial public offering on NASDAQ in June 2010, 13,300,000 shares of common stock were issued to the public at a price of $17.00 per share. The IPO raised US$226 million for the company.

Since that time, Tesla introduced three vehicles, the Model S, X, and Model 3. The Model 3 is Tesla first mass-market electric car with a base price of $35,000. Production on the 3 began in July 2017. However, problems with production have made investors wary. Tesla has struggled to hit its production target of building 6,000 Model 3's per week. Over 400,000 customers put down a deposit for the lower priced electric car, and many are still holding out for delivery.

Over the past two months, Tesla stock soared to as high as $379.57 on August 7, the day Musk made the now infamous tweet. On month later, Tesla shares fell to $263.24, but have since climbed back up. Tesla shares their all-time high on September 17, 2017 when the stock jumped to $389.57 in mid-day trading.

After the reports of the SEC's decision, Tesla share fell nearly 10 percent to $278.51 in after hours trading today. Tesla has yet to comment on the lawsuit.

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