The 'Funding Secured' Deposition: Musk v. the SEC

Elon Musk, on TwitterAm considering taking Tesla private at $420. Funding secured.

Tesla board member, text messageElon, what the hell? Did you just announce a going-private transaction on Twitter?

MuskI've been thinking about this for a while. The Saudi sovereign wealth fund is interested. I've met with them multiple times. They want to take Tesla private.

Board memberWas this approved by the board? By legal? Did anyone review this tweet before you sent it?

MuskI didn't think it needed board approval. It's a consideration, not a commitment. I said 'considering.' The tweet is accurate. I am considering it. And the funding is secured. The Saudis have confirmed they're interested.

Board memberElon, 'funding secured' is not the same as 'they expressed interest.' This is a public company. You just moved the stock 11%. The SEC is going to be all over this.

SEC attorneyMr. Musk, why did you choose $420 as the going-private price?

MuskI chose $420 because it represented a 20% premium over the stock price at the time. It was a round number. It was a premium that I thought was fair to shareholders.

SEC attorneyWere you aware that 420 is a reference to marijuana culture?

MuskI was aware of the association, yes. But that was not the reason I chose the number. It was a coincidence. I chose $420 because it was a 20% premium, rounded to the nearest number that made sense. I thought it would be a price that shareholders would be happy with.

SEC attorneyAnd the funding was secured? You had a commitment from a sovereign wealth fund to provide tens of billions of dollars?

MuskI had met with the managing director of the Saudi Public Investment Fund on multiple occasions. He had expressed a strong interest in taking Tesla private. He had confirmed that the fund had the resources to do so. I believed, based on those conversations, that the funding was secured. I understand now that the word 'secured' has a specific legal meaning that my use of it did not convey. But I was not using it as a legal term of art. I was using it conversationally.

SEC attorneyDid you have a term sheet from the Saudi fund?

MuskNo.

SEC attorneyDid you have a letter of intent?

MuskNo.

SEC attorneyDid you have a written confirmation of their interest?

MuskNo. The conversations were verbal. But they were very clear. I had no doubt about their interest.

SEC attorneyDid you discuss the price of $420 with the Saudi fund before you tweeted it?

MuskI don't recall specifically. I believe we discussed valuation in general terms. I don't recall discussing the specific number.

SEC attorneySo you tweeted a specific price to take Tesla private, representing a transaction value of approximately $72 billion, without having discussed that price with the party you claimed had secured the funding?

MuskI believed the price was fair. I believed the funding was available. The Saudi fund had confirmed they had the resources. The specific price was my determination of what would be fair to shareholders. I didn't need to negotiate that with the fund before announcing it. I was the CEO. I was making an offer to shareholders.

SEC attorney, in court filingMusk's tweet was false and misleading. It caused significant market disruption. Tesla's stock price jumped over 6% on the day of the tweet. Shareholders who bought on the basis of the tweet's false promise lost money when the truth emerged. The SEC seeks a permanent injunction, disgorgement, civil penalties, and an officer and director bar.

Musk's attorneys, in settlement negotiationsMr. Musk is willing to settle. He will step down as chairman for three years. He will pay a $20 million penalty. Tesla will pay a separate $20 million penalty. Tesla will appoint two new independent directors. Tesla will implement controls over Mr. Musk's communications. But Mr. Musk will not admit or deny the allegations.

SEC attorneyAnd the pre-approval requirement for tweets?

Musk's attorneysMr. Musk will agree to pre-clearance of written communications that contain, or reasonably could contain, material information about Tesla. But we want the policy to be specific, not a blanket gag order.

SEC attorneyWe can agree to that. The settlement will require Tesla to implement mandatory pre-approval procedures for Mr. Musk's public communications about Tesla. The procedures will be enforced by Tesla's securities counsel.

SEC attorney, in courtYour Honor, on February 19, 2019, Mr. Musk tweeted, quote, 'Tesla made 0 cars in 2011, but will make around 500k in 2019.' This tweet contained material information about Tesla's production guidance. It was not pre-approved. It violated the settlement.

Judge Alison NathanMr. Musk, you are under a court order requiring pre-approval of tweets that contain material information about Tesla. Did you get this tweet pre-approved?

MuskYour Honor, I did not. I believed that the tweet was not material. The production number was already public. I was just proud of the team. I was celebrating.

Judge NathanMr. Musk, the tweet contained a specific production forecast. A production forecast is material information. You are the CEO of a public company. You are under a court order. You cannot tweet material information about Tesla without pre-approval. Do you understand that?

MuskI understand, Your Honor. I will be more careful. I will comply with the order.

Judge NathanThe court is not going to hold you in contempt this time. But I am amending the order to require pre-approval of any tweet that contains information about Tesla's financial condition, production, sales, or projections. If you violate this order again, the consequences will be more severe.