Elon Musk’s business and legal troubles continue to worsen after the Tesla and SpaceX founder’s now-infamous 420 tweet in August. And now, the South African entrepreneur is facing down a lawsuit from the U.S. Securities and Exchange Commission (SEC). The SEC is suing Elon Musk for making false and misleading statements in his August 7 tweets about taking Tesla private. The lawsuit aims to permanently bar Musk from being the CEO of a public company.
The 420 Tweet That’s Ruining Elon Musk
If you’re just catching up with the Elon Musk 420 story, here’s a quick synopsis of what went down. Grimes, a critically acclaimed Canadian musician, has been dating Elon Musk. In July, Grimes revealed she was working on a track for Azealia Banks’ upcoming album. With Grimes working on tracks in Los Angeles and Musk’s mansion also in LA, the three got together for what seems to have been a bizarre weekend.
But before all that, Musk was hanging out with Grimes in LA. And on August 7, likely after smoking weed and/or dropping acid, Musk let fly a tweet that he definitely shouldn’t have. “Am considering taking Tesla private at $420. Funding secured,” the tweet read.
“Funding Secured,” became an Elon Musk meme overnight. And immediately everyone starting wondering about the $420 share price Musk tweeted about. Was it just a weed joke? A reveal about future business plans? Or both?
Grimes seems to think she inspired the tweet. That she introduced Musk to cannabis culture and that he came up with $420 to impress her. In a message with Azealia Banks the rapper shared on Instagram, Grimes says Musk “got into weed cuz of me.” Grimes goes on to say that Musk calculated the value of a share if he took Tesla private would be $419 dollars. Grimes says Musk then rounded it up to $420 “for a laugh.”
Tesla Shares Plummet Because the SEC is Suing Elon Musk
But the joke seems to be lost on the SEC. In their view, Musk’s tweet represents false and misleading statement pure and simple. There was no basis for the $420 calculation, or even the $419 one. And “funding secured” was patently false, even if an instance of Musk’s signature braggadocio.
The SEC also took issue with a subsequent tweet in which Musk reiterated that “investor support is confirmed.” The only uncertainty, Musk went on, was a pending shareholder vote on the funding. Musk has over 22 million followers on Twitter. And after the tweet, Tesla closed the day up 10 percent. But given the unfounded nature of Musk’s claims, the SEC alleges the tweets about Tesla caused chaos in the market and harmed investors.
“Musk knew or was reckless in not knowing that each of these statements was false and/or misleading because he did not have an adequate basis in fact for his assertions,” the SEC complaint says. The SEC complaint also addresses another series of tweets in which Musk taunts investors who had taken a short position on his company. Months before announcing the plans to take Tesla private, Musk blasts investors betting that its share price would drop.
For the SEC, all of Musk’s tweets about Tesla added up to a lawsuit. Should the SEC win its suit, it’s recommending Musk pays a penalty and that he be banned from “acting as an officer or director” of a public company. In an effort to protect Tesla, the board announced a decision to remain a public company in mid-August. But Musk could end up losing control over Tesla anyway.
The SEC’s announcement is destroying Tesla’s share price today. At the time of this writing, shares of Tesla (TSLA) are down to $269, a 13 percent drop.