The only problem? Those rumors were seeded, very publicly, by Musk himself, who announced his thoughts on Twitter ― and went so far as to set a prospective buyback price of $420 and promise he had the funding “secured.”
Wall Street jumped on the news, spiking Tesla stock from around $342 a share to a high slightly north of $370 in just 45 minutes.
About an hour and a half after Musk’s first tweet, trading on Tesla halted amid concerns of securities fraud. The tweet could be seen as a bid to manipulate the market, former SEC Chairman Harvey Pitt told CNBC.
“In 2013, the SEC made it clear that people could use social media to disclose significant information about their companies, but they had a caveat, which is people need to know where to look,” Pitt said.
In other words, people need to know ahead of time where that type of disclosure will be posted so they all have an equal shot at the information.
Musk’s tweet isn’t a clear violation of SEC rules, but it could be if it was explicitly intended to boost Tesla’s price. Whether he meant to do that or not, his tweet certainly had that effect: By the time trading halted, Tesla’s market value had soared to $61.74 billion, a significant raise from its pre-tweet $58 billion.
For comparison’s sake, General Motors Co. has a market cap of $54 billion; Ford Motor Co.’s is about $40 billion.
“If his comments were issued for the purpose of moving the price of the stock, that could be manipulation. It could also be securities fraud,” added Pitt. “The use of the specific price for a potential going private transaction is highly unprecedented.”
The broader timing of the tweet is also suspect, given Musk’s recent public denunciations of Tesla’s (equally vocal) critics. On Sunday, Musk compared traders hoping to profit off a decline in Tesla stock to Hitler, tweeting out a two-minute parody video to drive the point home:
There’s also a question of the funding Musk claims he has “secured.” Per CNBC, no major Wall Street banks have committed to finance a deal to take Tesla private, though a Financial Times report even earlier Tuesday suggests Saudi Arabia might have the gumption ― and the means ― to make it happen.
Musk explained his rationale in a letter to Tesla employees on Tuesday afternoon, noting at the outset that he has not made a final decision about whether to actually take the company private. But in the ultimate touch of irony, he said market volatility might ultimately force his hand:
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. 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.
I fundamentally believe that we are at our best when everyone is focused on executing, when we can remain focused on our long-term mission, and when there are not perverse incentives for people to try to harm what we’re all trying to achieve.