SEC Scrutinizes Public Messages Of Tesla’s CEO Elon Musk

SEC Scrutinizes Public Messages Of Tesla’s CEO Elon Musk
August 13, 2018

 

The stock of electric car maker Tesla, Inc. (Nasdaq: TSLA) surged 11%  to $379.57 last Tuesday after CEO Elon Musk said he was looking at the option of taking the company private at a price of $420 per share. This now values the company at around $72 billion. The same tweet also conveyed the message that Tesla has “funding secured” for taking the company private.

The stunning message from the 47-year-old investor and engineer boosted the stock price immediately. However, in the following days, the stock lost most of these gains as doubts surfaced about the logistics of raising such a huge amount in a short span of time.

Musk stated that he would prefer to hold his 20% stake in Tesla in case of a buyout deal. Informing employees of these details through a letter, the CEO proposed a choice for shareholders: disposing their shares for $420 each, or staying on as investors in a privately managed Tesla. Furthermore, Musk suggested that a special purpose vehicle, similar to the one that remains at his aerospace company SpaceX, would permit Tesla shareholders to stay invested if they prefer to do so. Investment bankers and analysts have reacted to this plan with cynicism, believing that it would be tricky for Musk, who has a net worth of about $22 billion, to raise the funds necessary for the deal, given that Tesla remains a loss-making entity.

 

SEC Investigation

As Musk did not reveal any details about the funder, the U.S. Securities and Exchange Commission is scrutinising all public statements related to this announcement. The San Francisco office of SEC is gathering evidence regarding Tesla’s media announcements in relation to sales targets and manufacturing objectives. Enforcement attorneys are also checking into whether Musk’s tweet about funding is factual. As of now, the SEC inquiry is only preliminary and will not result in anything that may harm investors.

 

Lawsuits

In other news, two lawsuits were filed to San Francisco federal court last week, claiming that Elon Musk tried to mislead investors by stating that funding has been secured to take the automaker private.

The first lawsuit, filed by shareholder Kalman Isaacs, requests the court to give class action status on behalf of investors who purchased Tesla’s stock on August 7th and 8th. The second lawsuit, filed by William Chamberlain, requests class action for those who either bought or sold Tesla between August 7th and 10th. Both lawsuits allege Musk of deliberately putting short sellers at risk by providing false information.

 

Morgan Stanley’s message to clients

While many believe that funding is not ready, Morgan Stanley has informed its clients that Tesla may opt for an equity buy out to make the company private. According to analyst Adam Jonas, Tesla could raise the funds in the private market by auctioning its shares. Jonas further reaffirmed his equal-weight rating along with the price target of $291 for the stock.

 

Rumours of Saudi backing

There was also a rumour that Saudi Arabia’s PIF (Public Investment Fund), which owns a 5% stake in the car project, may back Elon Musk’s proposal. The sovereign wealth fund has invested billions in technology; including a $45 billion investment made over five years in SoftBank Group’s Vision Fund. However, sources close to CNBC have revealed that PIF has no interest in backing Elon Musk’s plan to go private, and this is expected to put pressure on Tesla, as the board has not received any kind of financing plan from Musk as of yet. The board will discuss the matter and take a final decision in the week ahead.

 

Stock price

Technically, the stock is still bullish, with price trading above its 50-day moving average and the MACD indicator in the bullish zone. However, news related to the aforementioned SEC investigations and lawsuits can move the price in any direction. Thus the stock is expected to remain volatile until the truth emerges about the take-private proposal.

Tesla - Technical Analysis - 13th August 2018

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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