With every passing day, it is becoming increasingly likely that Musk's "funding secured" tweet could end up the costliest in history, and could potentially land him, or others, in prison.
Last week, before it was confirmed that the SEC had opened a probe into Tesla, by sending the company a subpoena inquiring into Musk's actions, we wrote that "the biggest risk for Musk is if regulators find that he made a statement only intending to goose his company’s share price, or as he likes to put it, "crush the shorts."
Under US securities law, companies and corporate officers can (and will) be held liable for making misstatements or omitting information that shareholders need to make informed investment decisions."
It now appears that the SEC is also wondering the same thing, because the WSJ reports that the SEC is now investigating whether Musk "intentionally misled investors when he tweeted about the proposal in a bid to hurt short sellers by driving up Tesla’s stock price."
The line of inquiry comes as the regulator is pressing Tesla directors for details on how much information Musk shared with them before he tweeted last week about a potential deal to take the company private, the WSJ reports citing a person familiar with the matter.
And, as has been extensively discussed here in the past week, establishing what the board knew and when is key to the SEC’s probe because if Musk didn’t show the board a relatively firm deal with potential investors, it could indicate that the conversations weren’t as far along as he suggested when he tweeted that he had “funding secured” for a deal.
It would also confirm that Musk's only intention was to, indeed, "crush the shorts", however by manipulating public perception about what was already decided.
And since we already know that Musk did not have a firm deal in place, and funding was certainly not "secured", it is up to the SEC to demonstrate that there are no individuals who are "too eccentric to prosecute" for the simple reason that anyone who intentionally misleads shareholders - even Elon Musk - can be charged with fraud under U.S. securities laws.
On the other hands, if Musk can show he had a basis to make the statement—such as advanced talks with the Saudi fund or a promise from them to fund the deal—regulators would be less likely to allege that his statement was misleading or false.
Then again if Musk elaborate on that statement, he already would have, which is why TSLA is now trading below where it was when the Saudis announced their 5% stake.
Meanwhile, Musk's alleged fraudulent tweet has already made the Urban Dictionary.