The Securities and Exchange Commission is suing Tesla CEO Elon Musk for fraud.
In early August, Musk tweeted that he was considering taking his electric car company, Tesla, private and listed the prospective share price at $420. That caused Tesla’s stock to shoot up, but the SEC now alleges the tweet had no basis.
In fact, Musk “had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source,” according to the lawsuit.
The lawsuit also claims that the $420 price was rounded up from $419, in an apparent wink at his then-girlfriend, the musician Grimes.
"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 Instagram DMs released by musician Azealia Banks, which included screenshots of text messages, Grimes said that Musk was trying to make a joke with the share price.
"So he rounded up to 420 for a laugh, and now the SEC is investigating him for fraud," Grimes texted Banks.
Musk explained his potential decision to take Tesla private by saying that he was in talks with Saudi Arabia’s sovereign wealth fund as a means to finance the deal.
“I left the July 31st meeting with no question that a deal with the Saudi sovereign fund could be closed, and that it was just a matter of getting the process moving. This is why I referred to ‘funding secured’ in the August 7th announcement,” he wrote in a blog post.
Tesla shares tumbled about 11 percent in Thursday extended hours trading.
You can read the lawsuit below:
Cover image: SpaceX founder and chief executive Elon Musk speaks after announcing Japanese billionaire Yusaku Maezawa as the first private passenger on a trip around the moon, Monday, Sept. 17, 2018, in Hawthorne, Calif. (AP Photo/Chris Carlson)