SEC sues Elon Musk, accuses him of fraud, and Tesla stock drops

Says Musk 'knew or was reckless in not knowing' he was misleading investors

NEW YORK — The U.S. Securities and Exchange Commission on Thursday sued Tesla Chief Executive Elon Musk, accusing him of securities fraud for making a series of "false and misleading" tweets about potentially taking the electric car company private.

In a complaint filed in Manhattan federal court, the SEC said Musk "knew or was reckless in not knowing" that he was misleading investors on Aug. 7 by telling his more than 22 million Twitter followers that he might take Tesla private at $420 per share, and that there was "funding secured."

The complaint also faults subsequent tweets in which Musk said "investor support is confirmed," and that a "special purpose fund" might be created for investors who stick with the Palo Alto, California-based company.

"In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source," the SEC said in the complaint.

Musk in a statement said, "This unjustified action by the SEC leaves me deeply saddened and disappointed. I have always taken action in the best interests of truth, transparency and investors. Integrity is the most important value in my life and the facts will show I never compromised this in any way."

Tesla shares fell 10 percent in after-hours trading.

Thursday's lawsuit makes Musk one of the highest-profile executives to be accused by the SEC of securities fraud.

It also seeks to bar him from running public companies as either an officer or director, which would include Tesla, as well as an unspecified civil fine.

The SEC does not have criminal enforcement power.

Musk has long used Twitter to criticize short-sellers betting against his company, and several investor lawsuits have been filed against him and Tesla over the tweets.

On Aug. 24, after news of the SEC probe had become known, Musk blogged that Tesla would remain public, citing investor resistance.

Reporting by Jonathan Stempel

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