Elon Musk investigated by US financial authorities over Tesla ‘420’ tweet about taking firm private

Securities and Exchange Commission reportedly asks Tesla why the announcement was made on Twitter rather than in a conventional regulatory stock market filing

US financial regulators are reportedly probing the Twitter activity of Elon Musk, after the billionaire entrepreneur dropped a bomb on markets this week saying he is planning to take his electric car company Tesla private.

Musk tweeted on Tuesday: “Am considering taking Tesla private at $420. Funding secured”.

That instantly sent shares in the company up 11 per cent.

Tesla has since confirmed that it is evaluating a plan to go back into private ownership, but there have been no details released of any financing plan, leading some to suggest that Musk might have contravened securities laws designed to prevent market manipulation.

The Wall Street Journal reported on Wednesday that the Securities and Exchange Commission had asked Tesla why the announcement was made on Twitter rather than in a conventional regulatory stock market filing and what the basis was for Musk’s financing claim.

The SEC’s rulebook states that publicly traded companies must not announce financing plans if executives don’t intend to complete it or lack a “reasonable belief” that it will be completed.

If Musk is found to have broken the rules he could face criminal prosecution.

“He is claiming there is a specific source of the funding so that had better be true. He has also claimed there is a specific amount available for funding. That has to be true. Otherwise, even if it’s not manipulation it would be fraud, so he’s got two potential areas of difficulty right there,” a former SEC chair, Harvey Pitt, told the US network CNBC.

According to lawyers consulted by Reuters, Musk could also face civil lawsuits from investors if it is ultimately proven he did not, in fact, have secure financing when he published his tweet.

A $420 per share sale would value the carmaker at around $70bn (£54bn).

On Wednesday the shares were trading at $370, giving it a market capitalisation of $63bn.

Palo Alto-based Tesla, named after the physicist Nikola Tesla, went public in 2010.

In its second-quarter results for 2018 the company posted $4bn of revenue and a loss of $717m.

Video shows man sitting in passenger seat of Tesla while car is set to autopilot

Tesla also burnt through $430m in cash in the quarter, leaving $2.24bn remaining on its balance sheet.

While the company has many devoted supporters among analysts and fund managers, it is also the most “shorted” stock on the US stock market, meaning there is also a considerable weight of opinion that the company is overvalued.

Musk owns just under 20 per cent of the company’s stock.

It is estimated that he would need to raise around $50bn to achieve his privatisation plan.

“There is scepticism as to where this money comes from,” Efraim Levy, an analyst at CFRA, told CNBC.

“The reason it [the stock] is trading at a discount is because of uncertainty as to whether the deal will come to fruition. If it doesn’t come through, the stock is going to crater.”

Register for free to continue reading

Registration is a free and easy way to support our truly independent journalism

By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists

Please enter a valid email
Please enter a valid email
Must be at least 6 characters, include an upper and lower case character and a number
Must be at least 6 characters, include an upper and lower case character and a number
Must be at least 6 characters, include an upper and lower case character and a number
Please enter your first name
Special characters aren’t allowed
Please enter a name between 1 and 40 characters
Please enter your last name
Special characters aren’t allowed
Please enter a name between 1 and 40 characters
You must be over 18 years old to register
You must be over 18 years old to register
Opt-out-policy
You can opt-out at any time by signing in to your account to manage your preferences. Each email has a link to unsubscribe.

By clicking ‘Create my account’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Already have an account? sign in

By clicking ‘Register’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Register for free to continue reading

Registration is a free and easy way to support our truly independent journalism

By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists

Already have an account? sign in

By clicking ‘Register’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Join our new commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in