Tesla Inc (NASDAQ:TSLA) board members are “racing to inoculate themselves” from the fallout as the Securities and Exchange Commission (SEC) ramps up its investigation into Tesla CEO Elon Musk’s tweets that he was taking the electric carmaker private.
FOX Business’ Charlie Gasparino reported that the investigation is now "formal."
“The San Francisco office of the SEC has sent subpoenas to Tesla regarding its privatization plans and Musk’s statement to determine whether the billionaire inventor intentionally misled investors,” reported Fox Business.
The news channel said Tesla has hired two law firms, Paul, Weiss, Rifkin, Wharton & Garrison to help deal with the SEC, and Latham & Watkins to advise on privatization.
READ: Musk claims funding for Tesla going-private deal will be done with equity as Saudis eager to proceed
Last week, Musk shocked investors after tweeting that he could take the company private at US$420 per share, the stock soared on the news before being halted. Tesla stock has since languished, falling 3.30% to US$336.18 Wednesday.
Both Tesla and the SEC have declined to comment about the investigation.
Meanwhile, members of Tesla’s board are scrambling to muzzle Musk who some directors think “is out of control.”
“In recent days, according to people familiar with the matter, some of his fellow board members delivered a stern message: Stop tweeting,” reported The New York Times.
It won’t surprise anyone that Musk hasn’t heeded that advice and has continued to post messages on Twitter. Of course, Musk might learn the hard way that it’s one Twitter message too many. If the SEC concludes Musk's funding disclosure was not accurate, which appears to be the case a week later, it could create major legal issues for the Tesla founder.
Musk has 22.3 million followers on Twitter and exploits the social media platform much like President Trump to provide an extraordinary unfiltered insight into what he is doing and thinking in real time. Musk routinely uses Twitter to spar with short sellers who are betting against Tesla shares and needle journalists who question the car maker’s prospects.
READ: Wall Street analysts weigh in on Tesla's potential path to privatization
The pitch is now so queered that three Tesla directors have separately hired the law firm Latham & Watkins to advise them as they consider any proposal by Musk to take the company private, said the New York Times.
The company cautioned Tuesday that a special committee of three directors hadn’t concluded whether taking Tesla private would be advisable or feasible, reported Bloomberg.
Meanwhile, two days after Musk jumped the gun and said he was "excited to work with Silver Lake and Goldman Sachs" as financial advisers in his bid to take Tesla private, at least half of the tweet has been confirmed by reading the tea leaves.
In a note to clients, as reported by the Business Insider, Goldman Sachs said it was suspending research coverage of Tesla because it was "acting as a financial advisor in connection with a matter that is fundamental to the reasonable analysis of the rating and price target for the stock."
It is standard practice for a bank to suspend research coverage when its investment banking unit does business with a company.
Contact Uttara Choudhury at uttara@proactiveinvestors.com
Follow her on Twitter: @UttaraProactive