Tesla Inc. has been served with a subpoena from the U.S. Securities and Exchange Commission, adding further scrutiny of CEO Elon Musk’s plans to take the company private.
The subpoena came after Musk’s tweet, “funding secured.”
According to The Wall Street Journal, the subpoena demands information from each of Tesla’s nine directors. It isn’t known what information is being sought.
Representatives for the SEC and Tesla declined to comment.
Under rule 14e-8 of the Securities and Exchange Commission, publicly traded companies are prohibited from announcing plans to buy or sell securities if executives don’t intend to follow through, either don’t have the means to complete the deal, or intend to manipulate the stock price.
The serving of a subpoena indicates that the inquiry has moved onto a formal stage, which may take months to years finalize.
Tesla’s share price fell down 2.6 percent to $338.69 on Aug. 15, following news of the subpoena, lower than the share price the day prior to Musk’s tweet.
The latest news extended the roller-coaster ride for Tesla investors in recent days, adding to uncertainty about the future course of the company and whether a deal can be done amid growing regulatory complications.
Questions over financing continue to grow
Since Musk’s tweet, it has become clear that neither Musk nor Tesla had the necessary financing set aside for the privatization, drawing skepticism from both investors and analysts, according to CNBC.
On Aug. 13, Musk said in a blog on Tesla’s website that he was in discussions with Saudi Arabia’s sovereign wealth fund and other potential backers but that financing was not yet nailed down. Musk also said that the reported amount of more than $70 billion required to privatize Tesla, “dramatically overstate the actual capital raise needed.”
According to Bloomberg, the Saudi Fund disclosed in March that it hired Washington law firm Akin Gump Strauss Hauer & Feld LLP to lobby for approval of acquisitions in the U.S., with a focus on CFIUS (Committee on Foreign Investment in the U.S.).
Despite the Saudi Fund having over $250 billion in assets, enough to purchase Tesla, many of the fund’s assets are not liquid and readily available cash is limited.
The proposal for Saudi Arabia to finance Tesla’s privatization may prove difficult due to Saudi Arabia’s Public Investment Fund (PIF) being tied up in other investments, and Saudi Arabia’s illiquid market. Assets owned by the PIF cannot be monetized quickly without driving down prices in the local stock market, while selling many of them would conflict with another of the PIF’s declared roles.
In addition, bankers familiar with Saudi Arabia’s Public Investment Fund told Reuters that have not yet seen any signs of the PIF committing to a Tesla deal.
Musk will also likely require clearance from U.S. national security officials if financing comes from Saudi Arabia, according to Bloomberg. Musk will be under the scrutiny of CFIUS (Committee on Foreign Investment in the U.S.) as the Trump administration enforces more scrutiny over foreign investments in American technology.
“Any foreign investment in Tesla would at least notionally be of interest to CFIUS,” Joseph Falcone, a partner at Herbert Smith Freehills in New York, told Bloomberg.
Musk tweeted late night on Aug. 13, he was working with Goldman Sachs and private equity firm Silver Lake as financial advisers. However, as of Aug. 14, Goldman was still negotiating its terms of engagement with Musk, according to a person familiar with the matter.
A three-person committee has been formed by Tesla’s board, which will assess a potential buyout by Musk while leaving the door open for other offers.
Reuters contributed to this report.