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article imageTesla stocks tumble after SEC accuses Elon Musk of fraud

By Karen Graham     Sep 28, 2018 in Business
Shares of Tesla nosedived 12 percent in early trading Friday morning as Wall Street absorbs the implications of a lawsuit the Securities and Exchange Commission filed Thursday against CEO Elon Musk for defrauding investors.
In the lawsuit, the SEC alleges "Musk’s statements, disseminated via Twitter, falsely indicated that, should he so choose, it was virtually certain that he could take Tesla private at a purchase price that reflected a substantial premium over Tesla stock’s then-current share price, that funding for this multi-billion dollar transaction had been secured, and that the only contingency was a shareholder vote."
Federal prosecutors are recommending some harsh penalties for Mr. Musk, including seeking an order for Musk to disgorge ill-gotten gains, pay penalties and be banned from serving as an officer or director of a public company. Reuters is reporting this morning that four early research notes from Wall Street analysts are calling for Musk to resign.
Analyst Ryan Brinkman, in a note Friday morning, reiterated the underweight rating he's had on the stock for at least three years and his price target of $195,
"Beyond this 'key man risk' concern (which we believe is of vital importance) we also see a number of other risks, including the potential for decreased confidence in the company on the part of investors, consumers, and suppliers," he continued.
“The SEC civil action may lead to Musk’s exit from Tesla (either permanently or temporarily) and the Musk premium in the shares dissipating,” Barclays analyst Brian Johnson said.
Gene Munster, the managing partner at venture capital firm Loup Ventures, said the lawsuit comes at a critical time for the electric car company and is a distraction. “Despite this, we think the company will survive,” he said.
Citigroup analysts downgraded Tesla’s stock to “sell” from “neutral” Friday, according to a note to clients. "There’s little question that Mr. Musk’s departure would likely cause harm to Tesla’s brand, stakeholder confidence and fundraising,” analysts wrote in the note. “If Mr. Musk ends up staying on, the reputational harm from this might still prevent the stock from immediately returning to ‘normal.'”
As of 9:53 a.m. Friday morning EDT, Tesla shares at 273.07 USD - down 11.20 percent.
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