Elon Musk, one of the current generation’s most discussed CEOs, was investigated by the Securities and Exchange Commission for possibly lying to Tesla’s investors on Twitter. By now, his infamous “Funding Secured” quote posted on August 7, referring to a possible buyout of public Tesla shares at $420, has become a meme in economics, tech, and finance.
Musk tweeted on August 7 “Am considering taking Tesla private at $420. Funding secured.” Previously, he had considered transferring Tesla’s stocks to a private market on Twitter. However, he didn’t have sufficient money to buy back all the stocks. Since shares were trading at below $330, this caused a massive superficial spike in its pricing leading to an all time high at $379.57 the same day. If the buyout carried through, all stockholders would have received $420 per share, guaranteeing profits.
However, “securing the funds” within a short amount of time definitely aroused suspicion. If Musk were to be found guilty, it would be for violation of Rule 10b-5, an anti-fraud rule against the declaration of false statements estimated to affect the stock market. If this were true, Musk would be banned from a position in Tesla and would prove devastating to the company and its future.
Tesla’s stock market has been open and successfully operating since June 29, 2010, but lately it has suffered huge fluctuations. Shortly after the tweet, Elon Musk revealed that funding had not, in fact, not been secured, and that he intends to keep Tesla public. This prompted both the Depart of Justice (D.O.J.) and the Securities and Exchange Commission (S.E.C.) to file criminal and civil suits against Musk respectively. Since its price peak on August 7 at $380, Tesla is currently trading at about $250 per share (October 11).
Proving Elon Musk is guilty will be difficult for the S.E.C. and D.O.J. because it would mean investigating into the potential investment from a wealth firm in Saudi Arabia. Delving into that matter would prove quite difficult, and the government needs to evaluate whether it is worth the resource and time. Musk would need to be identified as reckless with proper business conduct in order to be guilty.
As it turns out, Tesla and the S.E.C. agreed to settle the matter out of a public court trial on September 29. Musk and Tesla agreed to pay $20 million each, with the stipulation that Musk must step down from his role as Chairman of the Board for two years while retaining his role as CEO. This is widely considered a slap on the wrist for the internet’s favorite billionaire CEO, while the media portrays it as a victory for both sides.
In his defense, Musk declared that the tweet was obviously a joke, since the share price of $420 was a marijuana reference intended to impress his girlfriend, indie musician/rapper Grimes, and not a serious buyout price. While the S.E.C. is now satisfied with a $40 million civil suit payday, the D.O.J. is still carrying out its criminal investigation over Musk’s tweet.