Thursday, September 6, 2018

Good Classroom Discussion in the AIM Program on the Issues Surrounding Elon Musk’s “Funding Secured” Tesla Going Private Tweet

What will be the outcome of Elon Musk’s “Funding Secured” Tesla Going Private Tweet? Is this a violation of securities law?

Image result for applied investment management program marquette roomThis week the students in the AIM Class of 2020 had an opportunity to read various Wall Street Journal articles about the legal and regulatory issues encircling Elon Musk following his tweet about how Tesla had “funding secured” and was going private at $420 per share.

These are the questions that were discussed:

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  • Is there a problem with the tweet – did it violate SEC required basic reporting requirements?
  • Was the Musk tweet an improper reporting of a material event (no Form 8-K was issued) and was this a violation of Regulation Fair Disclosure – Reg FD)?
  • Is having 25 million followers on Twitter a valid defense for Musk’s going private at $420 per share tweet?
  • Did Elon Musk violate Rule 10b-5 involving the employment of manipulative and deceptive devices?
  • Was there an attempt to harm short sellers and was there a clear intent to defraud?
  • What could the SEC do if they find Musk and Tesla were in violation of Rule 105-b?
  • Does Musk and Tesla have a valid defense? Will the Trump-led SEC look the other way?

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Is there a way out for Musk and Tesla – and what is likely to happen?

The students' conclusion - If serious consideration is being given to taking Tesla private, the company and Musk have an incentive to reach a resolution with the SEC as quickly as possible.

The firms that might help fund a deal may be hesitant to commit financing if the cloud of an SEC investigation is hanging over Tesla.

But resolving the investigation will not be easy, at least not until there is greater clarity about what exactly Mr. Musk meant with his ill-fated tweet.

The students in the AIM Program will watch this playout through the remainder of the fall semester.