The Securities and Exchange Commission (SEC) has intensified & # 39; his research on Elon Musk and Tesla, according to sources familiar with the matter.
The independent US regulator was already making inquiries about the company after a tweet from 47-year-old billionaire Elon Musk about the private privatization of the electric car company Tesla.
However, the CEO is now under greater scrutiny by the SEC, sources say.
Tesla has not yet been charged with any crime, however, the SEC investigation is designed to ensure that the rules are not broken.
Musk tweeted about taking the private company on Tuesday at a share price of $ 420 per share, a significant jump from his current position.
After an initial increase in stock prices to approximately $ 375 per share on the same day, Tesla shares have since fallen almost five percent to $ 352.45.
However, the tweets have raised concerns over whether Musk violated the fair disclosure rules established by the SEC around the use of social media platforms for market manipulation.
The regulator has remained silent on the issue since the surprise announcement by Musk.
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The Securities and Exchange Commission (SEC) is analyzing Elon Musk and Tesla regarding the tweets that the CEO posted earlier this week about the privatization of the company. Tesla has not yet been charged with wrongdoing, but the SEC is studying closely to make sure the rules are not broken (file photo)
Officials who analyze whether public statements by Tesla CEO Elon Musk violate federal security laws are analyzing with & # 39; & # 39; increased scrutiny, "sources close to the matter told Bloomberg.
SEC compliance lawyers in the San Francisco office were already gathering general information, according to those who know the regulators' plans.
However, lawyers are now analyzing whether Musk's tweet about having insured funds to buy the company was meant to be real.
Musk's tweets about a possible purchase of Tesla are probably not enough to put him in legal danger unless the SEC proves the information was false or inaccurate, securities lawyers told Bloomberg.
As a general rule, the SEC holds executives responsible for their statements and considers them important information, which requires that they be true.
At this time, the SEC investigation is preliminary and there is no guarantee that formal action will be taken. Both Tesla and the SEC have refused to comment on the matter.
"I really do not understand the idea of what was suggested about the potential for them to become private," Dick Weil, CEO of the Janus Henderson Group, said in an interview.
"Obviously, it is an incredibly large valuation to access the private market in some way."
Security experts say that the tweets are probably not enough to justify legal action unless it can be proven that the statements are false or inaccurate.
According to a statement by six of the nine directors on the Tesla executive board, Musk addressed the possibility of taking the private company last week.
They said that I had addressed the funding for this to happen & # 39; without providing details.
The tweets raised concerns about whether Musk violated the fair disclosure rules established by the SEC regarding the use of social media platforms for market manipulation.
Tesla could be hit with a full-scale investigation if regulators determine that the CEO's statement on Twitter broke the rules by being false or misleading, according to WSJ.
At this stage, it is not clear if some laws have been broken, but in any case, experts agree that Musk's surprise announcement on social networks is unprecedented and can have consequences.
"If a company always issued its earnings launches on a conventional issue and did not alert investors, then that may be a problem, because an investor who sees Twitter, may have an unfair advantage," Ira Matetsky, a partner of Ganfer Shore Leeds & Zauderer in Manhattan told MarketWatch.
Tesla only told investors to monitor the CEO's Twitter feed in a public presentation once, in 2013.
After listing a large number of Tesla sites that are frequently updated with the latest information, including press sites and investors, the 2013 document states: "For additional information, follow Elon Musk's Twitter accounts and Tesla. "
Given this advice and Musk's extensive Twitter presence, with more than 22 million followers, the expert says that Musk's lawyers could argue that the new information was available, even if its delivery was not traditional.
WHAT ARE THE RULES OF THE SEC AROUND THE JUST DISCLOSURE?
The tweets from Tesla CEO, Elon Musk, about the company that is going to privacy, have reportedly got a closer look from the Securities and Exchange Commission.
The SEC is now analyzing whether what Musk said was true and why he announced the information on his Twitter.
The regulatory agency has certain rules about what companies can and can not talk about on social media platforms, as part of their fair disclosure rules.
Many believe that Musk's tweets are likely to weigh against the Reed Hastings Rule, which was established in 2012.
The rule was established when Netflix CEO Reed Hastings used his Facebook to post that the broadcast service had exceeded one billion hours for the first time.
This merited further investigation by the SEC's regulators, who then determined that it is allowed to publish relevant information on social networks.
However, companies must ensure that shareholders are notified that material announcements will be made on social networks, as well as that they will be given adequate access.
In the case of Musk, Tesla only told investors to monitor the CEO's Twitter feed in a public presentation once, in 2013.
Beyond that, regulators will be working to find out if Musk's claims were honest.
Musk tweeted that funding had been secured for a private agreement and that the company had received broad support from investors.
If Tesla does not have the funding in place, experts say that Musk's tweets could amount to market manipulation, as it would be an example of false statements that cause the company's stock to shoot up.
But, Musk may not be out of the hot water yet.
"If you do not have financing in place, but the deal happens anyway, then it can be, there's no harm, there's no fault," Metetsky told MarketWatch.
& # 39; If this were an impossible dream, there will be a case & # 39;
In the hours after the revelation of the plans to take Tesla to privacy, Musk remained silent on Twitter: unusual silence for a CEO known for his voracious activity on social networks.
Finally, he tweeted again on Wednesday afternoon, but could not address the growing controversy. Instead, he shared a chart illustrating the deliveries of Tesla vehicles and the autopilot hardware.
Musk's initial message came after a report said Saudi Arabia's sovereign wealth fund had bought a stake of $ 2 billion, or nearly 5 percent, in Tesla.
If Musk finally decides to take Tesla privately at a price of $ 420 per share, or more than $ 70 billion, it would be the largest purchase in history.
"Last week, Elon opened a discussion with the board about the privatization of the company," Tesla's board said in the statement.
This included a discussion on how being private could best serve Tesla's long-term interests, and also addressed the funding for this to happen.
"The board has met several times over the past week and is now taking the appropriate next steps to evaluate this," they added.
Tesla has not revealed any details about the financing beyond noting that the company had secured the necessary means for a private transaction.
So far, no one has stepped forward to say that supports the purchase.
Musk's tweets have raised concerns about whether the CEO violated the fair disclosure rules established by the SEC around the use of social media platforms for market manipulation.
If Musk finally decides to take Tesla privately at a price of $ 420 per share, or more than $ 70 billion, it would be the largest purchase in history
READ THE COMPLETE DECLARATION OF THE TESLA COUNCIL
& # 39; Last week, Elon opened a discussion with the board about the privatization of the company.
This included a discussion on how being private could best serve Tesla's long-term interests, and also addressed funding for this to happen.
The board has met several times during the last week and is taking the appropriate next steps to evaluate this. & # 39;
– Signed by Tesla board members Brad Buss, Robyn Denholm, Ira Ehrenpreis, Antonio Gracias, Linda Johnson Rice and James Murdoch
In a letter to shareholders after his tweet on Tuesday, Musk gave substance to his idea, suggesting that they would have the option to sell their shares for $ 420 each or continue investing in a private Tesla, outside the glow of Wall Street and its quarterly need results.
He said that that would allow Tesla to "operate as best as possible, free of as much distraction and short-term thinking as possible."
It is very rare for the director of a large company to make a significant announcement casually.
The tweet raised questions about how serious Musk's intentions were.
"If your comments were issued for the purpose of moving the stock price, that could be manipulation, it could also be securities fraud," former SEC Chairman Harvey Pitt told CNBC.
"The use of a specific price for a potential private private transaction is unprecedented and therefore raises important questions about what your intention was, so that would have to be investigated.
However, several Wall Street analysts expressed skepticism about Musk's ability to garner financial support to complete such an agreement.
Musk tweeted about taking the private company on Tuesday at a share price of $ 420 per share, a significant jump from his current position. After an initial increase in stock prices to approximately $ 375 per share on Tuesday, the stock fell since then by almost five percent to $ 352.45.
"Who gives between $ 30 and $ 50 billion to repurchase the stock?" Asked NordLB analyst, Frank Schwope.
"And if you stay as a shareholder you get less information than before and you depend more and more on Elon Musk."
Many cited the enormous burden of Tesla's debt as a sticking point in their privatization plans.
"The company has a negative cash flow," Steven Kaplan, a professor at the University of Chicago, told the BBC.
& # 39; How do you use any debt in a company that is negative in cash flow? & # 39;
JPMorgan analyst Ryan Brinkman said he gave only a 50 percent chance that Tesla would go to privacy.
The six board members who issued the statement on Wednesday include James Murdoch, executive director of Twenty-First Century Fox Inc and Brad Buss, who was the chief financial officer of solar panel maker SolarCity until it was purchased by Tesla in 2016.
Other board members mentioned in the statement included Robyn Denholm, Ira Ehrenpreis, Antonio Gracias and Linda Johnson Rice.
The other members of Tesla's board are Musk, his brother Kimbal Musk and venture capitalist Steve Jurvetson.
WHY ELON MUSK WANTS TO TAKE PRIVATE TESLA?
In a surprise announcement on Tuesday, Tesla CEO, Elon Musk, announced that the privatization of the electric car company weighed at $ 420 per share.
A price of $ 420 per share would value Tesla at $ 82 billion and represents a significant jump from current levels of approximately $ 379 per share.
Being private implies a transaction (s) that takes a company out of the public market, which means that retail investors can no longer market shares in the stock market.
The transactions to be carried out may be conducted by a non-controlling shareholder, a private equity firm that makes a leveraged purchase or a consortium of companies.
Musk said he received broad support from investors for the move. The only thing that gets in the way of an official announcement is the vote of the shareholders.
Being private would allow Tesla to avoid many of the pressures of public markets, such as stock price fluctuations, the scrutiny of Wall Street analysts, as well as the "attacks" of short sellers, a group that Musk said & # 39; I want & # 39; [Tesla] die so badly that they can prove it.
In a letter to employees, Musk said Tesla's volatile stock has been a "big distraction" for the staff and that being public created a lot of pressure on the company to make decisions that may be appropriate for a given quarter. , but not necessarily correct for the long term. & # 39;
If Tesla becomes independent, it would no longer be required to file public financial statements or make quarterly earnings calls with Wall Street analysts.
These events tend to cause upward or downward oscillations in Tesla's actions.