Elon Musk’s “Funding Secured” Tweet: The Fallout
- Tax Accounting and Finance
- The Knowledge Group
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Seems the Securities and Exchange Commission is not amused by Elon Musk’s recent tweeting. It’s examining the Tesla CEO’s assurance of having tens of billions ready to take the company private. Stockholders who’d rather not go private, Musk tweeted, would be eligible to sell at an attractive $420. Nasdaq dealt with the ensuing trading frenzy by temporarily pausing Tesla trades.
Musk’s “funding secured” statement may have violated SEC rules, if misleading.
Saudi Arabia’s Public Investment Fund might wish to take Tesla private—but:
- The amount of Saudi funding needed would give Saudi Arabia an untenably large ownership stake in Tesla;
- The Committee on Foreign Investment in the United States (CFIUS) would presumably need to vet the agreement for U.S. security risks;
- Financial institutions’ majority ownership of Tesla’s current stock might work for a public company, but shareholders would need to agree to it should the company go private; and
- A public company going private can only have a limited number of shareholders in any case.
Musk’s Twitter stream was already infamously unsettling. And now, the “funding secured” tweet is opening Musk to unfettered mockery.
For Tesla, 2018 has been a turbulent year even without this drama. Low demand and manufacturing delays have plagued the Tesla Model 3. A Model X on autopilot caused a fatality in March; a stock meltdown followed.
Tesla went public in 2010, but Musk has, numerous times, spoken of wanting to take the company private, and is obviously itching to make this happen soon. But now, any proposals to go private will now need to go through a dedicated committee of Tesla’s board.
And the big issue now involves the possibility of a federal investigation. Former SEC chair Laura Unger thinks Musk does not have the funding. This makes the misleading tweet a potentially insurmountable legal problem for Musk. Already, three lawsuits have alleged securities fraud.
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