US regulator sues Musk for fraud, seek to remove him from Tesla

RECKLESSNESS?

The SEC lawsuit comes as Tesla has been struggling to deliver its new Model 3 sedan into the hands of customers, after a long series of production issues and delays. The new vehicle is key to the company's future profitability.

The possibility of Musk being ousted as CEO also increases uncertainty about access to capital for Tesla, which has never posted an annual profit but has vowed to be profitable in the third and fourth quarters.

Musk has long used Twitter to criticize short-sellers betting against his company, and already faced several investor lawsuits over the Aug. 7 tweets, which caused Tesla's share price to gyrate.

According to the SEC, Musk "knew or was reckless in not knowing" that his tweets about taking Tesla private at $420 a share were false and misleading, given that he had never discussed such a transaction with any funding source.

The SEC said Musk met for less than an hour with three representatives of Public Investment Fund, at the company's Fremont, California, plant on July 31 during which the lead representative for the Saudi Arabian sovereign wealth fund expressed interest in taking Tesla private if the terms were "reasonable," according to the lawsuit.

Musk acknowledged the meeting lacked discussion of "even the most fundamental terms" of the deal and nothing was set in writing, according to the lawsuit. He did not communicate with the fund representatives again until three days after his tweets.

Besides creating "significant confusion and disruption in the market for Tesla's stock and resulting harm to investors," the SEC said that Musk did not consult with Tesla's board, other employees or outside advisors about the tweets before sending them.

Even the company's head of investor relations was blindsided by the tweets, whom the SEC said had to text Musk's chief of staff to ask whether they were "legit."

Reuters