The high profile Tesla CEO is in the regulator's crosshairs after a series of tweets saying he was taking the company private.

By Daniel Herborn

Posted on September 28, 2018

The Securities and Exchange Commission (SEC) is seeking to ban Musk from acting as an officer of a public company.

Tesla shares had fallen 13.5% in after hours trading in the wake of the news.

Musk took to Twitter to reassure his fanbase, retweeting a tweet from May that read “Just wanted to say thanks to all Tesla supporters. I damn well love you” and writing “Tesla owners” with two heart emojis.

Background to the SEC’s legal action against Musk

The iconoclast CEO will need more than cute emojis to get out of this legal mess. Back on 7 August, the Tesla CEO made representations on Twitter that he was considering taking the company private and had already secured funding for the move. In subsequent tweets, he expressed his hope that all current Tesla shareholders hold onto their stock but that Tesla would offer a buyback at US$420 per share.

The tweets immediately raised eyebrows, with former SEC Chairman Harvey Pitt saying Musk may have crossed a line.

“If his comments were issued for the purpose of moving the price of the stock, that could be manipulation,” Pitt said. “It could also be securities fraud.” Pitt also said the fact the tweets gave a specific buyback price was highly unusual and would raise questions of Musk’s motive in publishing the tweet.

It later emerged that Musk had not actually secured funding to take Tesla private and had only held preliminary discussions on the topic. In a blog titled ‘Update on taking Tesla private’, Musk conceded that conversations to secure funding were ongoing and a number of variables were invovled.

John Coffee, Jr., the Director of the Center on Corporate Governance at Columbia Law School, told Wired: “There are enough concessions in the blog post about this being subject to financial and due diligence review and final approvals to determine that Musk didn’t have funding secure. He had at best, a hope for it.”

In light of this, Coffee suggested Musk cut a deal with the SEC rather than take it on in a court battle that could cost Tesla millions.

The SEC outlines why it is taking action for fraud

In a statement, Steven Peikin, Co-Director of the SEC’s Enforcement Division said that officer’s have a duty to their shareholders. “An officer’s celebrity status or reputation as a technological innovator does not give license to take those responsibilities lightly,” he added.

“Taking care to provide truthful and accurate information is among a CEO’s most critical obligations,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division. “That standard applies with equal force when the communications are made via social media or another non-traditional form.”

Tesla is now facing quite a quandary. Market analysts have long been skeptical that Musk has the right temperament to run a public company but for many Tesla supporters enamoured of Musk’s vision and unconventional approach, he is the company and it would lose its lustre without him at the helm.

Just last week, Musk was hit with another lawsuit, this time from Thai cave rescue diver Vernon Unsworth, who is suing for libel after Musk called him a “pedo guy” and claimed he had a child bride.