The Securities and Exchange Commission is suing Elon Musk for fraud. If he loses the lawsuit, he could be out as Tesla’s CEO.
Tesla shares tanked over 10% on the news in after-hours trading, after finishing the day down slightly and up about 7% for the week thus far.
Friday is likely to bring carnage. If the stock dips below $250, look out below.
In a statement provided to Business Insider’s Mark Matousek, Musk pushed back against the charge he delivered false statements and harmed investors when he tweeted earlier this year that he had the funding in place to take Tesla private at $420 per share.
“Integrity is the most important value in my life and the facts will show I never compromised this in any way,” he said.
The SEC allegations are the culmination of a summer of near-constant insanity around Tesla. The company was already under a lot of pressure — and being investigated by the SEC for other statements and claims — back in May when it reported a predictable, yet smaller, loss than analysts expected.
Shares actually traded up briefly in after-hours action, until Musk flipped out in response to questions from two analysts on a conference call. The stock was immediately crushed.
In 2017, Tesla shares had pushed toward $400, but in 2018 they’d been sliding in the first quarter. Absent Musk’s comments, however, it looked as if the markets might take a wait-and-see attitude toward the company in the second and third quarters, as the carmaker worked out its May production issues with its Model 3 sedan.
But that did happen, and Q1 earnings were simply round one.
Round two arrived with second-quarter earnings in early August. Another big loss, but Tesla’s revenues were starting to look like they might be poised for a takeoff; shares gained strength.
Then came the now-infamous and perhaps ruinous “take private” tweet, about a week later. The stock took off, but then declined again as it became apparent that Musk’s goal to enlist the Saudi sovereign wealth fund and existing Tesla investors in the plan lacked substance. The whole thing was subsequently called off after Musk consulted with the Tesla board.
Musk also accused a diver involved with the Thai cave rescue of a youth soccer team of being a pedophile and he smoked pot on a podcast.
If you weren’t exhausted by this point, you should have been. Meanwhile, before Thursday’s SEC lawsuit news broke, Tesla’s stock price was roughly back where it began in May, before the hot summer of madness broke out.
Arguably, if Musk and Tesla had done nothing but make and sell cars all summer, shares could have a been a bit higher.
But obviously Musk didn’t do nothing, and now the SEC could ban him from ever being a public company CEO again.
I emphasize could because the SEC has at this point just charged Musk and detailed the relief it’s seeking. We’re also dealing with tweets here, and as far as I know, this is the first instance of the SEC using the platform as a key part of a fraud allegation.
But Musk’s CEO status matters because in addition to Tesla, he’s CEO of SpaceX, which pre-IPO could be worth as much, or more than, Tesla.
I haven’t even gotten to the earliest part of year and SpaceX’s successful launch of the Falcon Heavy rocket, with Musk’s own Tesla Roadster as the payload. That was February, and all those months ago Musk looked like the most visionary businessperson in human history.
An investment in Tesla has always been an investment in Musk, so the SEC allegations are serious. He doesn’t run the company so much as chart its destiny — and until Thursday, that destiny had become worth $50 billion. Musk’s own skin in the game is 20%.
The rest of the year is going be a rough ride for Tesla and Musk. That’s unfortunate, as the third quarter could have lived up to Musk’s promises to be the company’s best ever, in terms of vehicle deliveries.
Did all of this have to happen? Clearly not. But it did. And Musk has himself to blame.
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