On Thursday, at a news conference the Securities and Exchange Commission alleged that Tesla Chief Executive Elon Musk chose a share price of $420 for possibly taking the electric car maker private because of its reference to marijuana culture.
The SEC sued Musk alleging fraud and charging the CEO of Tesla with making misleading and false tweets and failing to notify regulators properly of material evens involving the company.
Musk called the allegations by the SEC unjustified and that he acted in the investors’ best interest.
The SEC’s co-director of enforcement Steven Peiken during the news conference said the agency alleges that Musk arrived at the $420 share price, by assuming a 20% premium of what the then existing share price of Tesla was and then rounding it to $420 because of that number’s significance in marijuana culture, and the belief Musk has that his girlfriend would be amused because of it.
Last month, Musk released a tweet that said he was looking into taking Tesla private and included, “Funding secured.”
That tweet sent shares of Tesla up and down for weeks. Later Musk explained that he had spoken with the sovereign wealth fund of Saudi Arabia and was confident funding would come through at the prices he proposed per share of $420.
The Tesla board of directors on Thursday defended Musk releasing a prepared statement that said Tesla and its board have full confidence in Mr. Musk, his integrity, and leadership of the business, which has resulted in the most successful auto company in the U.S. in more than a century.
An industry analyst said the timing of the SEC suit could not be worse related to the standpoint of the automotive market. Tesla is under intense pressure from competition of late from automakers Audi, BMW and Jaguar, as the competition increases across the luxury electric vehicle industry.
Most analysts do not think Musk would decide to step down from his CEO role and do not see the company’s board requesting his removal.
Shares of Tesla were down sharply during Thursday’s afterhours trading.
A large portion of the market cap of $52.4 billion at Tesla is because of the presence of Musk at the helm said one analyst on Wall Street.
He added that a large portion of the market cap is based upon the fact Musk is someone that many in the industry want to work with.