Kiichiro Sato | AP
Tesla CEO and founder of the Boring Company Elon Musk.
Tesla CEO Elon Musk has been sued by the Securities and Exchange Commission for fraud, according to court documents filed Thursday. Sources close to the company told CNBC the company was also expecting to be sued, though Tesla was not named as a defendant in the complaint.
Shares of the automaker fell roughly 10 percent in extended trading Thursday.
The SEC complaint alleges that Musk issued “false and misleading” statements and failed to properly notify regulators of material company events. The SEC plans to hold a press conference at 5 pm E.T.
In August, Musk tweeted that he was considering taking Tesla private, adding “funding secured.” The tweet spurred a scandal-ridden fall for Tesla and sent the stock see-sawing for weeks.
Musk later explained that he had been in discussions with the Saudi Arabian sovereign wealth fund and felt confident the funding would come through at his proposed price of $420 per share.
The SEC, in its complaint, alleged:
Musk knew that he (1) had not agreed upon any terms for a going-private transaction with the Fund or any other funding source; (2) had no further substantive communications with representatives of the Fund beyond their 30 to 45 minute meeting on July 31; (3) had never discussed a going-private transaction at a share price of $420 with any potential funding source; (4) had not contacted any additional potential strategic investors to assess their interest in participating in a going-private transaction; (5) had not contacted existing Tesla shareholders to assess their interest in remaining invested in Tesla as a private company; (6) had not formally retained any legal or financial advisors to assist with a going-private transaction; (7) had not determined whether retail investors could remain invested in Tesla as a private company; (8) had not determined whether there were restrictions on illiquid holdings by Tesla's institutional investors; and (9) had not determined what regulatory approvals would be required or whether they could be satisfied.
Musk said in an interview with The New York Times that he calculated a take-private price of $420 by rounding $1 up from what would have been a 20 percent upside at the time.
“According to Musk, he calculated the $420 price per share based on a 20% premium over that day's closing share price because he thought 20% was a 'standard premium' in going-private transaction,” the SEC alleged in its suit. “This calculation resulted in a price of $419, and Musk stated that he rounded the price up to $420 because he had recently learned about the number's significance in marijuana culture and thought his girlfriend 'would find it funny, which admittedly is not a great reason to pick a price.'”
In the hours after the initial tweet, Musk doubled down on the proposal in subsequent tweets. The SEC cited those subsequent tweets in the complaint as additional misleading statements.
Musk also failed to properly notify regulators about his plans to take the company private, the complaint alleges.
Tesla's board of directors initially formed a special committee to evaluate the take-private proposal, but Musk ultimately called off the privatization plans on Aug. 24.
Tesla did not immediately respond to request for comment.
Read the lawsuit as filed in the Manhattan District Court below, and download the file here:
This is breaking news. Please check back for updates.
—CNBC's
David Faber
contributed to this report.
