Federal investigators look into Musk comments

Tesla said on Tuesday the US Department of Justice was investigating Chief Executive Elon Musk's public statements in August that he was considering taking the electric carmaker private, the latest and biggest threat to Musk's leadership.

The company said that the Justice Department asked Tesla for documents about Musk's announcement, describing it as a "voluntary request," since they had not received a subpoena or a request for testimony. The company said it was co-operating and that the matter "should be quickly resolved."

Read more: Tesla public or Tesla private. Which way forward?

The probe by the Justice Department, which can press criminal charges, comes on top of a civil probe by the Securities and Exchange Commission and shareholder lawsuits.

Recently Musk has also been criticized for other erratic behavior, including appearing on a podcast appearing to smoke marijuana and giving a tell-all interview to The New York Times in which he admitted to feeling overwhelmed and unable to sleep over his company's ambitious production targets.

A Twitter surprise

Musk surprised investors on August 7 when he announced his plan on Twitter to take Tesla private, tweeting that he had "funding secured" for a deal that would have valued the company at $72 billion (€61.6 billion). In a separate tweet, he wrote: "Investor support is confirmed."

Tesla's shares jumped after his tweet, but many people were skeptical that the tens of billions of dollars needed for the buyout would materialize. Normally such a major announcement would be explained in detail beforehand to regulators and not announced on a private Twitter account in two sentences.

After two weeks of uncertainty Musk abruptly abandoned the plan of going private on August 24, saying it would be more time-consuming and distracting than anticipated, and that "most of Tesla's existing shareholders believe we are better off as a public company."

Tesla's stock, which has lost about 25 percent since its gains after Musk first tweeted about going private, fell 3.5 percent on Tuesday. Despite this the company's market capitalization remains well above that of Ford and only slightly behind that of General Motors.

But is it a crime?

Legally speaking there is a fine line here between recklessness and intentional market manipulation — in this case to possibly harm short-sellers, who have sold stock and hope to make a profit by buying it back for less later on.

"Any criminal investigation takes this up a level and creates more danger for the company and Musk," said Peter Henning, a lawyer who worked for the SEC and the Justice Department.

To charge Musk with a crime, the Justice Department would need to show that he intended to manipulate the company's stock price, said Henning, now a law professor at Wayne State University in Detroit.

For a civil enforcement action, the SEC would only need to show that Musk acted negligently, which is easier to prove, he said. The SEC could subject Musk to civil penalties such as fines, relinquishing improper profits and more seriously a ban on running public companies.

tr/kd (Reuters, AFP)