The SEC is reportedly inquiring into a tweet from Tesla CEO Elon Musk about the potential for the company to go private.
An inquiry from the SEC does not necessarily mean an investigation will follow, but if the agency does determine one is necessary, it will start by looking at a tweet Musk posted on Tuesday, Harvey Pitt, a former SEC chairman, told Business Insider.
If Musk is found guilty of misconduct, potential punishments could range from hundreds of millions of dollars in fines to criminal prosecution.
Nearly three days after Tesla CEO Elon Musk said he had secured the funding necessary to take Tesla private, pending a shareholder vote, neither he nor the company has disclosed where that money could come from.
One possible explanation: Tesla and its board of directors don’t know.
While Tesla’s board released a statement on Wednesday saying Musk had discussed the prospect of going private with them last week, Reuters reported on Thursday that Musk had yet to tell the board where the backing for a buyout deal would come from, citing a source familiar with the matter.
Tesla did not immediately respond to Business Insider’s request for comment.
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Two words could get Musk into trouble
Musk’s failure to clarify his tweets indicating Tesla is a shareholder vote away from becoming a private company is a problem, James Rosener, a partner at the law firm Pepper Hamilton who specializes in private equity and corporate financing, told Business Insider.
“The fact that there has been no announcement clarifying, confirming, or denying the financing is surprising and puts Tesla and Musk at great risk,” he said in an email.
That risk includes the possibility of fines from the Securities and Exchange Commission, or even criminal prosecution.
The Wall Street Journal reported on Wednesday that the SEC made an inquiry into Tesla about whether one of Musk’s tweets regarding the possibility of taking the company private was truthful. And on Thursday, Bloomberg reported that the agency was “intensifying” its inquiry.
An inquiry from the SEC does not necessarily mean an investigation will follow, but if the agency does determine one is necessary, it will start by looking at the tweet that has put Musk under intense scrutiny, according to Harvey Pitt, who served as SEC chairman from 2001 to 2003.
“Am considering taking Tesla private at $420. Funding secured,” Musk said on Tuesday via Twitter before issuing a formal statement on Tesla’s website.
Tesla’s share price surged after the tweet, rising by as much as 12%, to over $381, before trading closed.
According to Pitt, mentioning the possibility of taking Tesla private on Twitter, while ill-advised, will not trouble regulators. Instead, it’s the tweet’s final two words, “Funding secured,” that could create problems.
”’Funding secured’ is a very strong term and it has legal consequences,” Pitt said.
If the SEC launches an investigation, it will determine if, at the time Musk made that tweet, he had …read more
Source:: Businessinsider – Finance