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Is Tesla Going To Pot?

September 11, 2018 Blog

It’s been a terrible summer for Tesla’s billionaire CEO, Elon Musk.

Last month, Musk, who is Tesla’s single largest shareholder and owns 20% of the company,  said he was considering converting Tesla to a private company. The post not only sent the stock zooming upwards, it also caught the attention of securities regulators.

Days later, Musk told The New York Times that he was physically exhausted, working up to 120 hours a week at times and taking Ambien to help him sleep.

And that was before he smoked marijuana during a live podcast last Friday with comedian Joe Rogan.

Sensing that short-sellers were going after his company, Musk tried to squeeze the shorts by announcing on August 7 on Twitter that he was considering taking the company private.

“In the post, he said that the financing for such a transaction, which would probably run into the tens of billions of dollars, had been ‘secured,’ the Times noted. “Tesla shares, a popular target for so-called short sellers who bet on certain stocks losing value, soared about 11 percent on the day Mr. Musk posted the message.”

“It has become clear since then that neither Mr. Musk nor Tesla had actually lined up the necessary financing aside from having preliminary conversations with some investors,” the Times reported.

The SEC has subpoenaed Tesla about the matter.

The latest Tesla drama comes on the heels of another SEC investigation. In 2017, the SEC started an investigation of Musk’s overly optimistic production forecast of 100,000 to 200,000 units of Tesla’s new Model 3 car which Musk said would sell at the enticing price of $35,000.

When Musk made those public statements, he did not disclose that Tesla was having significant production problems and the company eventually was only able to produce 4,000 a year, at a price in excess of $50,000.

In other words, Tesla had been under investigation for months over Musk’s misleading statements.

The SEC is “intensifying scrutiny of Tesla Inc.’s public statements in the wake of Elon Musk’s provocative tweet about taking the electric-car company private,” according to Bloomberg news. “SEC enforcement attorneys in the San Francisco office were already gathering general information about Tesla’s public pronouncements on manufacturing goals and sales targets.”

“Now, attorneys from that office are also examining whether Musk’s tweet about having funding secured to buy out the company was meant to be factual,” according to Bloomberg.

Musk’s statements on Twitter last month seemed to give the stock an upward jolt, just as he did when he announced in 2017 his overly optimistic production goals.

It would be best for Musk to realize that false statements of material fact to investors constitute investment fraud. His pronouncements are not just innocent Tweets during a sleepless night that investors will eventually forgive or understand because he was stressed out.

Some unsolicited advice to Elon Musk – come clean to the SEC and Tesla’s shareholders and then get a good night’s sleep.

Zamansky LLC is a New York law firm which represents investors in court and arbitration cases against securities brokerage firms and issuers.  The firm may represent investors in cases against companies mentioned in this blog.  Zamansky LLC also represents investors in arbitration cases against UBS and other brokerage firms regarding Puerto Rico bonds and UBS closed end bond funds and other investments.