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TECHNOLOGY

Is Elon Musk Serious About Taking Tesla Private? The SEC Wants to Know

The SEC first heard on Twitter, like everyone else.

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BY Mark Matousek - 09 Aug 2018

Is Elon Musk Serious About Taking Tesla Private? The SEC Wants to Know

PHOTO CREDIT: Getty Images

  • The Securities and Exchange Commission made an inquiry into Tesla about whether one of Elon Musk 's tweets regarding the possibility of taking the company private was truthful, The Wall Street Journal reports.
  • According to the publication, the SEC is also looking into why Musk's first statement about the potential to take Tesla private was made on Twitter instead of in a regulatory filing.
  • The agency also asked the company if it believes Musk's tweet follows its rules about protecting investors, the Journal reports.
  • "Am considering taking Tesla private at $420. Funding secured," Musk first said on Tuesday via Twitter before issuing a formal statement on the company's website.
  • The SEC declined Business Insider's request for comment and Tesla did not immediately respond to a request for comment.

The Securities and Exchange Commission made an inquiry into Tesla about whether one of Elon Musk's tweets regarding the possibility of taking the company private was truthful, The Wall Street Journal reports.

According to the publication, the SEC is also looking into why Musk's first statement about the potential to take Tesla private was made on Twitter instead of in a regulatory filing. The agency also asked the company if it believes Musk's tweet follows its rules about protecting investors, the Journal reports.

The SEC declined Business Insider's request for comment and Tesla did not immediately respond to a request for comment.

"Am considering taking Tesla private at $420. Funding secured," Musk first said on Tuesday via Twitter before issuing a formal statement on the company's website.

Tesla's share price surged after the tweet, rising by as much as 12% to over $381 before trading closed.

No details about funding have been disclosed, though. And according to Musk's statement , no final decision has been made. And that has some experts raising an eyebrow.

James Rosener, a partner at the law firm Pepper Hamilton, told Business Insider that Twitter was not the right medium for a securities disclosure since the platform's 280-character limit prevented Musk from disclosing enough information relevant to investors -- including the structure of the deal, its tax impact, and the amount of debt it would require -- to ensure he's not misleading them. According to Rosener, Musk's tweet likely ran afoul of the SEC's anti-fraud rules.

"There's definitely material omissions," he said. "Clearly, it was not what any lawyer with any experience in this kind of stuff would advise to put out."

David Whiston, an equity strategist at Morningstar who covers the US auto industry, said he was confused by Musk's tweets, which he said indicated Musk had both the funding and shareholder votes necessary to take the company private.

"I'm still trying to understand why he even went public like this, because I don't see a point in going public to say you are considering going private unless you're trying to get, perhaps, the price higher than $420 a share, or you're just really eager to hurt the short-sellers. Otherwise, why wouldn't you just wait until you're definitely doing a deal to say something," he said.

Tesla's board did release a statement on Wednesday morning, but it was very brief and offered few details besides that Musk met with the board last week to bring up the possibility of going private. Musk said via Twitter on Tuesday that the deal was contingent on a shareholder vote, but that "investor support was confirmed."

Tesla has been public since 2010, but Musk has said he would like to take Tesla private in the past.

"I wish we could be private with Tesla," Musk said in an interview with Rolling Stone published in November 2017. "It actually makes us less efficient to be a public company."

Musk has also said on multiple occasions that Tesla will become profitable by the end of this year and won't need to raise additional funds, despite its increased cash burn rate in recent quarters.

At the end of June, Tesla achieved its goal of making 5,000 Model 3 sedans in one week. Musk previously said the company would hit that number by the end of 2017, and that sustaining such a production rate is critical for Tesla to become profitable.

The Financial Times reported on Tuesday that Saudi Arabia's sovereign wealth fund has acquired a $2 billion stake in the company. The fund owns between 3% and 5% of Tesla's total stock, which means the stake is likely worth between $1.7 billion and $2.9 billion.

-- This post originally appeared on Business Insider.

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