Fri, Aug 10, 2018 - Page 10 News List

SEC steps in after Musk tweet on Tesla rings alarm bells


US regulators are looking into Tesla Inc chief executive Elon Musk’s use of Twitter to announce that he is considering Tesla private, the Wall Street Journal reported on Wednesday, adding another twist to what could be the biggest buyout in history.

The US Securities and Exchange Commission (SEC) has asked the company whether Musk’s announcement was factual and why it was done via social media, rather than through a filing, the newspaper said, citing unidentified people familiar with the matter.

The SEC has established that companies can use social media to announce material and potentially market-moving information, but securities lawyers said that Musk could find himself in legal difficulty if the “funding secured” portion of his statement posted on Tuesday was untrue or half-baked.

“To put that out unless he absolutely has financing secured and is ready to make the bid, that could be market manipulation,” said Keith Higgins, a Ropes & Gray partner who formerly led the SEC’s corporation finance unit.

“He could be in big trouble if that turns out not to have been true,” higgins said.

Tesla has not disclosed any sources of financing for the deal and no one has stepped forward publicly to say that they are backing the plan.

On Wednesday, less than 24 hours after Musk’s initial tweets, company board members said that they were made aware of Musk’s plan last week — raising a whole different set of questions about whether SEC rules were violated.

Companies are required to fill out an SEC form known as an 8-K to tell shareholders about major events. For the most significant matters, corporations get four business days to file.

While there are plenty of examples of companies being fined for failing to meet the deadline, it is unclear that the board learning of Musk’s plan would trigger that requirement.

“Frankly, the bigger issue is going to be whether the information is correct or not,” said Ira Matetsky, a partner at Ganfer & Shore in New York, who outlined questions that the SEC might ask.

“When Musk tweeted this, was he saying this was something that was definitely going to happen? Something that might happen? How would a reasonable investor interpret that and was it consistent with the facts as they existed at the time?” Matetsky said.

Stephen Crimmins, a former SEC enforcement lawyer who is now a partner at Murphy & McGonigle, said that Musk’s tweets likely did not amount to market manipulation.

“He’s a CEO saying positive things about his company and that he has the ability to pursue a takeover,” Crimmins said.

Other corporate executives have used Twitter to make statements that could have a significant impact on their companies’ share prices, but securities lawyers said that there are no prior examples of a CEO making a statement like Musk’s during trading hours.

“It’s highly unusual,” said Paul Scrivano, global head of the mergers and acquisitions practice at Ropes & Gray.

“I’m not aware of any other deal where the founder is going to take the public company private and announced that he was going to do it by Twitter,” he said.

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