The U.S. Securities and Exchange Commission is reportedly probing Tesla after Chief Executive Elon Musk tweeted Tuesday, about securing funding to take the electric-car maker private. “Am considering taking Tesla private at $420. Funding secured,” Musk tweeted.
Currently Musk isn’t being charged or is in trouble for his tweet but further explanation will likely be needed.
SEC prohibits executive officers and companies from disseminating misleading information concerning important company news.
As far as social media usage is concerned, companies can post important shareholder-related updates provided that addition regulatory filings are attached.
Securities lawyers believe that the billionaire celebrity chief risks running into trouble with the regulator, if his tweet was false or misleading, as well as how he disclosed the information.
Speaking to CNBC, former SEC chairman Harvey Pitt said, “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.”
Tesla investors were sent into a frenzy and the shares halted on Tuesday following the tweet.
An earlier report saying that Saudi Arabia was considering taking a significant share in the firm worth $2 billion, had already caused the stock to gap up sharply. But after Musk’s tweet, the stock started falling around 12:50 p.m.
Shares were up more than 7% for the day, when trading was halted at 2:10 p.m. pending the following news from Mr. Musk:
“Earlier today, I announced that I’m considering taking Tesla private at a price of $420/share. I wanted to let you know my rationale for this, and why I think this is the best path forward.”
“First, a final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best. As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders. Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.”
“I fundamentally believe that we are at our best when everyone is focused on executing, when we can remain focused on our long-term mission, and when there are not perverse incentives for people to try to harm what we’re all trying to achieve.”
Some investors are not so convinced that Mr. Musk actually wants to take Tesla private. Others think he trying to raise the price of the stock through the tweet.
Tesla stock was down $19.70, or 5.32% in afternoon trading on Thursday, after The Wall Street Journal report.