SEC Looking Into Legality Of Elon Musk's Tesla Privatization Announcement

Tesla CEO Elon Musk is no stranger to Twitter controversy, but his latest tweets could potentially land him in legal trouble. The Securities and Exchange Commission (SEC) is looking into Musk’s Twitter declaration that the electronic car manufacturer intends to privatize after more than eight years on the stock market, the Wall Street Journal reported.

The nature of Musk’s Tuesday announcement could land him in a legal bind for stock manipulation or even fraud.

Early Tuesday afternoon, Musk revealed on Twitter that Tesla intended to go private at $420 per share and that he had already secured funding. That caused Tesla (TSLA) shares to surge before eventually going back down to roughly where they had been before.

The problem is that, in doing so, Musk could have violated SEC rule 14e-8, which blocks companies from making pronouncements like Musk did without all the necessary details in place. There is still no confirmation aside from what Musk said online that Tesla has actually secured the necessary funding to go private.

Analysts and investors would likely be aware of a transaction of that magnitude, but there has been radio silence on that front since Musk’s announcement. Musk bemoaned the stock market’s tendency to short Tesla, as well as the pressure of having to meet quarterly financial expectations, in a more formal statement he released later on Tuesday. There is some speculation that he may have announced the privatization plans in the way he did in order to artificially drive up Tesla’s share price.

In an interview with CNBC, former SEC chairman Harvey Pitt outlined the two problem areas with Musk’s announcement.

“He is claiming there is a specific source of the funding so that had better be true,” Pitt told CNBC. “He has also claimed there is a specific amount available for funding. That has to be true.”

Musk maintains there is no final decision yet on whether or not to go private. However, he seemed optimistic about how it would work out for Tesla’s future, as well as the likelihood of shareholders approving the plan in a necessary vote. Tesla’s board of directors said in a statement it was evaluating the plan.