U.S. SEC asks for removal of Tesla’s head, Elon MuskTesla without Elon Musk at the wheel? To many of the electric car maker’s customers and investors that would be unthinkable. But that’s what government securities regulators now want to see.
The Securities and Exchange Commission has asked a federal court to oust Musk as Tesla’s chairman and CEO, alleging he committed securities fraud with false statements about plans to take the company private.
The agency says in a complaint filed Thursday that Musk falsely claimed in an Aug. 7 statement on Twitter that funding had been secured for Tesla to go private at $420 per share, a substantial premium over the stock price at the time.
An SEC press release says the agency asked the U.S. District Court in Manhattan for a “bar prohibiting Musk from serving as an officer or director of a public company.” It also is asking for an order enjoining Musk from making false and misleading statements along with repayment of any gains as well as civil penalties.
Ousting Musk, who has a huge celebrity status with more than 22 million Twitter followers, would be difficult and could damage the company. He’s viewed by many shareholders as the leader and brains behind Tesla’s electric car and solar panel operations.
The stock market shuddered at the prospect. Shares of Tesla plunged nearly 12 percent in extended trading Thursday.
“Corporate officers have important responsibilities to shareholders,” Steven Peikin, co-director of the SEC’s Enforcement Division, said in a statement. “An officer’s celebrity status or reputation as a technological innovator does not give license to take those responsibilities lightly.’
Musk, in a statement issued by Tesla, called the SEC action unjustified.
“Integrity is the most important value in my life and the facts will show I never compromised this in any way,” the statement said.
The complaint alleges that Musk’s tweet harmed investors who bought Tesla stock after the tweet but before accurate information about the funding was made public.
Peter Henning, a law professor at Wayne State University and a former SEC lawyer, said it’s the first fraud case involving use of social media by the CEO of a public company. Musk and Tesla didn’t fully disclose details of the plan in the Aug. 7 tweet or in later communications that day as required, he noted.
Joseph Grundfest, a Stanford Law School professor and former SEC commissioner, said Musk will likely want to settle before trial so that he could conceivably stay on as CEO with some constraints. But Musk also could agree to step down as chief executive officer and instead take another title, such as chief production officer.