The Securities and Exchange Commission announced on Sept. 27 that it charged Elon Musk with securities fraud after he went on Twitter barrage saying he will take Tesla private, including claims that he supposedly had secured funding for this move.
Specifically, the charges filed in federal district court in the Southern District of New York accused Musk of breaching antifraud provisions of the federal securities laws.
If found guilty, SEC wants to bar Musk from holding any executive or directorial positions in a publicly traded company, Stephanie Avakian, co-director of the SEC's division of enforcement, told press on Thursday. Musk could also be penalized with a permanent injunction, disgorgement, and civil fees.
At the center of the case is one of Musk's tweets on Aug. 7 where he told his 22 million followers that he could take Tesla private at $420 per share, SEC said in its complaint. Musk also mentioned that funding for the transaction had been secured and that he was only waiting for shareholder's vote to make things final.
Musk's tweet pushed Tesla stock price to climb by more than 6 percent on the same day. SEC stressed that this led to significant market disruption while the truth was that Musk had not entered into any agreement with any prospective financing partners to take Tesla private. The problem arises in the fact that Musk made the claims over Twitter when he knew for a fact that the transaction remained uncertain and was still vulnerable to unforeseen market development.
In a statement, Avakian explained that a company's CEO should always provide truthful and accurate information, even though he or she had to make statements via any social media platform or any other non-traditional communication format.
Steven Peikin, co-director of the SEC's Enforcement Division, added that company executives have the burden of trust in the market and important responsibilities to their shareholders. In the case of Musk, his celebrity status or his reputation as an important technological innovator does not give him the rights to neglect his responsibilities as a CEO.
Meanwhile, SEC supposedly reached out to Musk with a settlement offer but the CEO and founder refused to negotiate and insisted that he was in good faith, The New York Times reported citing a person close to Musk. Another source said the parties did not reach an agreement and so SEC decided to move forward with the charges.
Tesla shares plummeted by more than 12 percent in after-hours following SEC's filing of its charges.
