In This Article:
By Michelle Price
WASHINGTON (Reuters) - Tesla Inc (TSLA.O) Chief Executive Elon Musk's decision to abruptly abandon a plan to take his electric carmaker private will not resolve his mounting regulatory and legal woes, and may even make them worse, some securities lawyers said.
Explaining his reversal in a late-night blog post on Friday, the billionaire CEO said that taking the company private “would be even more time-consuming and distracting than initially anticipated,” and that “most of Tesla’s existing shareholders believe we are better off as a public company.”
It was on Aug. 7 that Musk first surprised investors with his plan by tweeting that he had “funding secured” for a go-private deal, which would have had a value of $72 billion. In a separate tweet, he wrote: “Investor support is confirmed." [L2N1VG01J]
Musk and Tesla are facing investor lawsuits and a U.S. Securities and Exchange Commission investigation into the truthfulness of the CEO'S Aug. 7 tweets, according to an Aug. 8 report by the Wall Street Journal.
The SEC declined to confirm that report to Reuters. A Tesla spokesman declined to comment.
"The SEC will continue its investigation until it's satisfied that it is on top of the facts," said Stephen Crimmins, an attorney with Murphy & McGonigle who spent 14 years at the SEC, where he prosecuted hundreds of securities cases.
"What happened on Friday will be of interest to the SEC because it will allow them to probe whether Musk's pulling back from the go-private somehow indicates that he did not have a reasonable basis for his statement. They will be asking questions of him and others involved in the decision as to why he reversed course."
Musk has stuck to his original statement that he believed a deal was possible, and one person familiar with the discussions told Reuters that Musk was serious about taking the carmaker private.
But acting in good faith may not be enough to help Musk escape the regulator's gaze.
U.S. securities law requires public company executives to have a “reasonable basis” on which to make representations to the investing public, and that would likely be the focus of an SEC probe, said three securities lawyers.
It remains unclear what Musk meant by “funding secured.” In an Aug. 13 statement, Musk said that he left a July 31 meeting with the managing director of Saudi Arabia’s sovereign wealth fund “with no question that a deal ... could be closed.”
The Saudi fund had earlier acquired a just-below 5 percent stake in Tesla on the open market. But the fund has made no comment on whether it had promised to back a much larger Tesla go-private deal.