Elon Musk, the brains behind Tesla Motors, is being sued by the US Securities and Exchange Commission (SEC). The regulator claims that Musk falsely claimed that he could take the company private. It also alleges that Musk made fake and “reckless” statements. How this will impact Tesla share prices?
28 September 2018 – Shares of Tesla stock dropped by as much as 11% following the news stating that one of the US regulatory bodies suing Elon Musk, the CEO of Tesla Motors. Reportedly, the Securities and Exchange Commission (SEC) is suing Musk over a tweet from August that mentioned that he was considering taking the company private and had secured funding.
Tesla to be taken private?
The CEO of electric car making company was previously facing a criminal probe over the above-mentioned tweet. The suit alleges that Musk falsely claimed that he could take the company private. It also alleges that Musk made fake and “reckless” statements. In addition to that, the regulator sought undetermined civil penalties against Musk, online reports state.
The tweet from Musk in August reads:
"Am considering taking Tesla private at $420. Funding secured."
Following the tweet, Musk issued a company statement, where he noted that Saudi Arabia’s sovereign wealth fund had mentioned taking Tesla private a number of times for a period of almost two years. The Saudi fund bought a 5% stake in Tesla. Musk states that he met with the fund’s managing director on July 31 and was convinced that a deal to take Tesla private would be closed.
"During the meeting, the Managing Director of the fund expressed regret that I had not moved forward previously on a going private transaction with them, and he strongly expressed his support for funding a going private transaction for Tesla at this time," Musk said in his statement. "I understood from him that no other decision makers were needed and that they were eager to proceed.
Tesla Shares Drop After SEC Sues Musk
Musk also added in his statement:
"I left the July 31st meeting with no question that a deal with the Saudi sovereign fund could be closed, and that it was just a matter of getting the process moving. This is why I referred to 'funding secured' in the August 7th announcement."
Reportedly, the US SEC is seeking to ban Musk from acting as an officer or director of a publicly traded company. According to online reports, the SEC complaint outlined that the statements "created the misleading impression that taking Tesla private was subject only to Mr. Musk choosing to do so and a shareholder vote." The regulator added:
“In truth and in fact Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source."
AtoZ Markets' senior market analyst, Amandeep Sonewane, shared his professional views regarding the development in the market:
"Tesla Inc. (NASDAQ: TSLA) stock is trading at $307.52 with the market cap of $ 52.4 Billion. After SEC charges Tesla CEO Elon Musk with fraud, I believe that the stock price will be moving downwards. As the charts suggest, the company was constantly outperforming during the past few years in terms of sales."
He further added:
"Tesla Motors Inc. is considered one of the leading electric car manufacturers in the global market, inclined toward utilizing renewable energy. As we can see in the charts, if an investor would purchase Tesla Motors Inc. stock in 2013 when it was 32 USD, he would see 10X returns now. According to the technical charts, the stock is in a downtrend for the weekly timeframe, but the investors might see a huge hike in prices. Buying in dips is the best opportunity for the investors as the long-term charts represent still on the support."
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