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Securities fraud complaint filed by the US Securities and Exchange Commission against Tesla CEO Elon Musk contains a revealing view of the events that led to the "secure finance" tweet heard on the Internet.
And fortunately, TechCrunch has gone through the document and highlighted the most compelling details, including new information from the SEC investigation.
But above all, the SEC filed a lawsuit Thursday in federal court, alleging that Musk had lied when he tweeted Aug. 7 that he had "guaranteed funds" for a private takeover of the company at $ 420 per share. The federal securities regulators reportedly served a subpoena to Tesla just one week after the tweet. Investigations can take years before action is taken, if at all.
In this case, the investigation, which according to the regulators continues, resulted in a complaint within six weeks.
The SEC alleges that Musk has violated the anti-fraud provisions of the federal securities laws. The commission asked the court to fine Musk and ban the billionaire entrepreneur from performing the duties of director or director of an open company . This is a big problem, and a Musk will certainly fight.
In a statement sent to TechCrunch, Musk described the fraud charges as an "unwarranted action" that left him "deeply saddened and disappointed".
Here are some of the key points and nuggets from the complaint, which include details about the SEC's investigation:
The interest of the fund in Tesla
Musk met with representatives of a sovereign investment fund (Sovereign Wealth Fund of Saudi Arabia) three or four timesin January 2017. There has never been a formal agreement, but the fund has expressed a "Verbal desire" to make a big investment in Tesla and establish a production facility in the Middle East, according to the complaint.
After months without contact, Musk met with the fund's senior representative on July 31. He then learned that the fund had acquired nearly 5% of the common shares of Tesla.
According to the complaint, the representative expresses his interest in the privatization of Tesla and wishes to establish a production facility in the Middle East. Musk said he was open to the idea but did not make any commitment.
The representative told Musk that as long as the conditions were "reasonable", the fund would suit them. However, both parties never discussed specific conditions at the meeting or discussed what would be or would not be "reasonable". According to the complaint, nothing was exchanged in writing.
Musk did not again contact the fund's representatives about a privatization transaction until August 10, three days after his August 7 statement, indicated the complaint.
The Saudi sovereign fund agreed in September to invest $ 1 billion in starting Lucid Motors electric vehicles.
The tweet was not a whim
Some have speculated that Musk's tweet of Aug. 7 was only a silly impulse, not least because the proposed shared price was referring to marijuana. But the regulators show in the complaint that Musk was speaking to the council for taking the offer to take Tesla privately as early as August 2, when he sent to the board of directors, chief financial officer and general counsel of Tesla Tesla Private at $ 420.
The e-mail exposed the reasons why he wanted to take Tesla privately, including being public "[s]Tesla ubjects to constant defamatory attacks on the part of the community of short sellers, causing considerable harm to our valuable brand, "according to the complaint.
The price of the action of $ 420
According to the complaint, Musk calculated the price of 420 dollars per share on the basis of a premium of 20% over the closing price of the day, because he thought that 20% was a "standard bonus" in private transactions .
This calculation resulted in a price of $ 419. Musk said he had rounded up the price to $ 420 because he had recently learned the importance of the number in marijuana growing and he thought his girlfriend would "find that funny, which is not not a good reason to choose a price, "according to the complaint.
A chance of 50-50
The August 7th tweet from Musk indicated that funding had been secured. The complaint exposes a very different account.
According to Musk, Musk thought there was "a lot of uncertainty" about a possible private transaction when sending his August 2 e-mail to Tesla's board, "but it was worth a look" , according to the complaint.
He estimated at the time that the probability of completion of a transaction was about 50%, according to the complaint.
Permission granted, request ignored
Musk had a call with the council on August 3, the day after he sent the email. He told the board that he wanted to contact existing shareholders to assess their interest in participating in a privatization transaction, the complaint said.
The board of directors authorized him to contact some investors and report on these conversations.
Musk has never spoken to any shareholder. According to the complaint, he had a conversation with a private equity fund representative about the process. But he did not contact any additional potential strategic investor to assess their interest.
He also did not provide any specific proposal to the Board, contacted existing shareholders to determine whether they would remain invested in Tesla as a private company, retain advisors or determine whether retail investors could remain invested. in Tesla as a private company.
Four days after the call, he sent the tweet.
An unprecedented transaction structure
During his conversation with a private equity fund partner, who had experience with such transactions, Mr. Musk said the number of Tesla shareholders should be less than 300, according to the complaint.
But here is the problem. Tesla then had more than 800 institutional shareholders and many individual shareholders.
The private equity fund partner said that the transaction structure envisaged by Musk was "unprecedented" in its experience, according to the complaint.
Is it legitimate?
The tweet of August 7 in Musk sparked a whirlwind of calls, e-mails and texts from the board of directors, executive staff, analysts and the press. Confusion was the theme at first.
In one example, Tesla's chief investor relations officer, Martin Viecha, sent a text to Musk's chief of staff (Sam Teller) about 12 minutes after the initial tweet asking, "Was this text legitimate?
Teller and Viecha would receive more communications from the press and shareholders. A journalist sent Musk an e-mail asking him: "Are you just doing nonsense?" The reporter wrote this: Is it just a 420 joke gone wrong? ?
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