Elon Musk's tweets about taking Tesla private could land him in hot water with the SEC

Tesla CEO Elon Musk was sued twice on Friday by investors accusing him of fraudulently concocting a scheme to squeeze short-sellers, including through Musk's proposal to take the company public. The lawsuits were filed only three days after shocking investors by announcing on Twitter that he was considering taking the company public in a $72 billion USD deal that would value it at $420 per share, detailing that funding had already been secured.

In one lawsuit, Kalman Isaacs said Musk's tweets are false and misleading and amounted them to a "nuclear attack" and that the company's conduct artificially inflated Tesla's stock and violated federal securities laws.

The buyout came as a surprise to investors of the company, which initially went public in 2010 on NASDAQ and which is currently valued at more than $64 billion. Rationale behind the deal is that it would remove the company from the scrutiny of Wall Street, eliminate the need to publicly disclose earnings and to remove Musk from the job of reporting to shareholders.

"As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders," Musk explained in a blog post. "Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company."

Musk first penned the idea on Twitter around 1pm, stating that he was "considering taking Tesla private at $420" and that "shareholders could either to sell at 420 or hold shares & go private." He is the company's largest shareholder, owning more than 20 percent of the company with his holdings being valued at $12 billion, though he noted that his intention is not to increase his personal holdings and that existing investors would be encouraged to hold onto their shares.

The company's stock, trading under the ticker symbol TSLA, shot up from $342 to more than $367 before trading was halted at 2:08pm. Trading eventually continued at 3:45pm with the stock hitting $387.

Tesla stock on August 7

The tweet took most people by surprise, but kept in line with Musk's unpredictable leadership method. Typically companies launching a transaction like this would line up financing months in advance, announce the news in a press release and then file the paperwork with the SEC;

According to the Wall Street Journal, the SEC has made inquiries into whether Musk's tweets were truthful and as to why he made the announcement on Twitter instead of in a regulatory filling. If found to have been intentionally boosting stock prices, he could be held legally responsible for his actions.

In 2013 the SEC ruled that companies can announce important news on social media so long as investors have been previously briefed on the news, in a case involving Netflix founder Reed Hastings.

In 2013, the S.E.C. ruled, in a case involving the Netflix founder Reed Hastings, that companies can announce important news via social media as long as they have previously told investors they might do so, and simultaneously announce that news to the broader public.

📸: Flickr