On August 7th at 12:48pm, Elon Musk tweets: “Am considering taking Tesla private at $420. Funding secured.” Tesla is the highest valued car company in the U.S. If the tweet is true, this would be one of the largest privatizations in U.S. corporate history.
1. According to the SEC, it is illegal to attempt to manipulate a stock value which the SEC defines as “intentional conduct designed to deceive investors by controlling or artificially affecting the market for a security.”
Securities Exchange Act of 1934 Rule § 240.14e-8 “Prohibited conduct in connection with pre-commencement communications” provides as follows:
It is a fraudulent, deceptive or manipulative act or practice within the meaning of section 14(e) of the Act (15 U.S.C. 78n) for any person to publicly announce that the person (or a party on whose behalf the person is acting) plans to make a tender offer that has not yet been commenced, if the person:
(a) Is making the announcement of a potential tender offer without the intention to commence the offer within a reasonable time and complete the offer;
(b) Intends, directly or indirectly, for the announcement to manipulate the market price of the stock of the bidder or subject company; or
(c) Does not have the reasonable belief that the person will have the means to purchase securities to complete the offer.
2. After the tweet, Tesla’s share price rose from $355 to almost $370 ending at just under $380 – which was an 11% increase for the day.
3. The “best practice” is for a public corporation to halt trading before a significant announcement in order to pre-empt shareholder suits claiming that shareholders traded on incomplete or inaccurate information. Corporations will also typically release with the announcement complete information about the significant development. In this case, share trading did finally stop for about 90 minutes on Tuesday some time after the tweet, and Musk’s tweet was as terse as it gets. Needless to say, Tesla’s securities attorneys were probably put into turmoil at the time of the tweet.
4. According to the WSJ, the SEC is apparently inquiring into the matter. Some securities attorneys consider it likely that the SEC has already opened up a file and is requiring documentation from Tesla to back up the claim.
5. The legal question is whether the tweet was accurate, meaning, did Musk actually secure the funding necessary to go private. If he does not actually have the funding, then Musk could face both civil and criminal penalties.
6. The assumption is that the Tesla CEO would not make such a false claim. However, the privatization would require more than $71 billion dollars – that’s a lot of cabbage. Some have also questioned the unprecedented quoting of a specific price for going private (i.e., $420) to support skepticism as to the veracity of the tweet.
What’s the current status? Very confused shareholders.
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