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Tesla's chief executive, Elon Musk, has been sued by the Securities and Exchange Commission for fraud, according to court documents filed Thursday. Sources close to the company told CNBC that the company also expected to be sued, although Tesla was not named as an accused in the complaint.
@elonmusk: I'm considering taking Tesla privately at $ 420. Financing assured.
Musk further explained that he had discussions with Saudi Arabia's sovereign wealth fund and was confident that the financing would be at the proposed price of $ 420 per share.
The SEC, in its complaint, alleged:
Musk knew that he (1) had not agreed to any terms for a privatization transaction with the Fund or any other source of financing; (2) no longer had substantive communications with Fund representatives beyond their 30- to 45-minute meeting on July 31; (3) had never discussed a privatization transaction at a price of $ 420 with a potential funding source; (4) had not contacted other potential strategic investors to assess their interest in participating in a privatization transaction; (5) had not contacted Tesla's existing shareholders to assess their interest in remaining invested in Tesla as a private company; (6) formally retained no legal or financial adviser to assist in a privatization transaction; (7) had not determined whether retail investors could remain invested in Tesla as a private company; (8) had not determined whether there were any restrictions on the illiquid holdings of Tesla Institutional Investors; and (9) did not determine what regulatory approvals would be required or if they could be satisfied.
The complaint also alleges that Musk tweeted the statement without the contribution of other Tesla leaders.
"At 13:00 EDT, about 12 minutes after Musk posted his tweet declaring" plans to take Tesla privately at $ 420. Financing assured, "Tesla's Investor Relations Officer sent a message to Musk's chief of staff, Legitimate Text ?," says the complaint.
Musk said in an interview with the New York Times that he calculated a price of $ 420 per round by rounding the dollar to 20%.
According to Musk, he calculated the price of $ 420 per share based on a 20% premium over the closing price because he thought that 20% was a "standard premium" in a private transaction. "This calculation resulted in a price of $ 419 and Musk stated that he had rounded the price up to $ 420 because he had recently learned the importance of this figure in growing marijuana and thought his girlfriend would find that funny, which is to choose a price. "
In the hours following the initial tweet, Musk doubled the proposal in the following tweets. The SEC cited these tweets in the complaint as additional misleading statements.
Musk also failed to properly inform the regulators of his intention to take over the private business, according to the complaint.
Tesla's board of directors initially set up a special committee to evaluate the takeover proposal, and Musk said he hired financial advisors to help them. Musk finally canceled the privatization plans on August 24th.
Tesla said earlier this month that the Justice Department was also reviewing the August 7th tweet.
Tesla did not immediately respond to the request for comment.
Read the complaint filed in Manhattan District Court below and download the file here:
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