Elon Musk, founder and CEO of Tesla and SpaceX, is in deep trouble in the US. The Securities and Exchange Commission (SEC) has filed a lawsuit against the serial entrepreneur for fraud, alleging that he made “false and misleading” statements regarding his intention to take Tesla private with the aid of Saudi Arabian cash.
This is no minor action: not only is the SEC seeking financial reparations for confusing the stock market and harming investors’ interests, it also wants to bar Musk from acting as an officer or director of any publicly traded company.
In short, the reckless tweeting of the billionaire carmaker and space technology pioneer may be about to cost him and his companies dear, and could undermine his entire career.
History of a debacle
On 7 August, Musk shocked Wall Street when he took to Twitter to announce that he planned to take Tesla off the stock market, suggesting that funding was “fully secured” for the deal.
An update from Musk on 13 August explained that the money came from Saudi Arabia’s Public Investment Fund (PIF), which had been “quietly building a three to five percent stake” in the company, according to the FT.
Musk explained that his earlier claim that the funding was secured followed a series of private meetings over a two-year period, including conversations with the managing director of the PIF, Yasir Al Rumayyan, an ally of Saudi crown prince, Mohammed bin Salman.
The PIF had expressed renewed support for proceeding with a deal to take the company’s shares off the public markets, claimed Musk. Such a deal would be funded principally through equity, he added, with roughly two-thirds of the shares held by existing investors ported over to the newly private company.
Whether this explanation was an honest summation of what Musk saw as the facts, or a frantic damage limitation exercise will now be decided by the court.
The allegations
The lawsuit – filed on 27 September in Manhattan by the SEC – says, “Musk’s statements, disseminated via Twitter, falsely indicated that, should he so choose, it was virtually certain that he could take Tesla private at a purchase price that reflected a substantial premium over Tesla stock’s then-current share price, that funding for this multi-billion dollar transaction had been secured, and that the only contingency was a shareholder vote.
“In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source.”
Musk had “never discussed a going-private transaction at $420 per share with any potential funding source,” it adds. “He also knew that he had not satisfied numerous additional contingencies, the resolution of which was highly uncertain.”
Some days after the infamous tweet, Musk announced that Tesla would remain a public company. But the damage had been done.
A fitting response
To rub salt into Musk’s self-inflicted wounds, Saudi Arabia’s sovereign fund has since made a $1 billion investment in Californian electric vehicle maker – and Tesla challenger – Lucid Motors.
That funding, announced on 18 September, will enable Lucid to complete development and testing of its first vehicle, the Lucid Air, construct a $700 million factory in Casa Grande, Arizona, and begin rolling out its North America retail strategy, before beginning mass production in 2020.
The message to Musk could hardly be clearer.
In a torrid, self-defeating year for the CEO, Musk is also being sued for defamation by British diver Vernon Unsworth, for repeated – and apparently groundless – allegations about his sexual conduct. Unsworth was involved in the rescue of 14 trapped boys in a Thai cave, a story that gripped the world in July.
Musk’s own solutions to the boys’ plight were rebuffed by rescue workers and seen by some as a publicity-seeking distraction – the apparent cause of Musk’s ire.
Again, Twitter was the forum for the outbursts.
Internet of Business says
The expression ‘a bull in a china shop’ has often been used to describe a reckless individual upsetting everyone around him, while sending his own achievements crashing to the ground. The term certainly applies to Elon Musk this year, although he could also be seen as a bull in a pen, trying to free himself from investors’ lassos, while becoming ever more angry and volatile.
In the early Spring he was a media darling, a new Steve Jobs for the electric transport and private space-faring age, firing roadsters into space, landing his reusable rockets, and launching experimental satellite constellations to bring broadband to rural areas.
However, after the fatal crash of a Tesla car in March, a different Musk began to emerge from behind the inspiring, futurist image.
This alternative Musk was egocentric, short-tempered, and seemingly unable to cope with criticism, while Tesla attempted to micro-manage media outlets (see Internet of Business, passim) and Musk sought to discredit negative press coverage.
But not all of the criticisms came from the media. Days after the crash in California, the US National Transportation Safety Board (NTSB) slammed Tesla for releasing information about the accident without alerting the agency beforehand, as it was obliged to do. The NTSB said, “We take each unauthorised release seriously. However, this will not hinder our investigation.”
The impression was that Tesla was trying to seize control of media messaging rather than follow standard protocols – a trend that can now be traced to Musk himself.
Whether he is fit to run a public company is now a matter for the courts to decide, but one thing should be clear to the man himself: responsible management and impulsive self-sabotage are mutually exclusive concepts.
Step away from Twitter, Mr Musk: 140 characters plus one flawed character do not a leader make.