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Tesla directors say they knew of Elon Musk’s surprise plan to go private

Tesla directors have said they knew about Elon Musk’s surprise proposal to privatise the money-losing car maker before he tweeted about it and have met several times in the past week to discuss the proposal.

The statement, issued by six of Tesla’s nine-member board, suggests Musk’s controversial tweets, which led to the company’s stock being suspended from trading for a time on Tuesday, were less spontaneous than originally believed and not designed simply to punish Tesla stock short-sellers.

The board members said they were “taking the appropriate next steps” to evaluate the proposal. But they did not reveal who or what institution Musk may have been referring to when he posted “funding secured”.

The company, which is losing money and burning through cash reserves, has not revealed how it plans to raise more than $70bn it needs to offer shareholders the $420 per share that Musk indicated.

No board member has come forward to back the plan. In its statement, the board said the company’s chief executive had “addressed the funding for this to occur”.

No bank or institution has come forward either. In a note to clients, Bernstein analyst Toni Sacconaghi asked: “What does Musk mean by ‘funding secured’? How could Tesla possibly fund such a large transaction?”

On Wednesday, Tesla shares closed down 5% at $370 after surging 11% on Tuesday.

But as the dust settles on Musk’s latest Twitter escapade, questions remain over whether the Tesla chief executive broke SEC guidelines by tweeting the news.

Musk has 22.3 million followers on Twitter, and Tesla’s share price was already rising after the Financial Times reported that Saudi Arabia’s sovereign wealth fund had taken a $2bn stake in the company.

“I do not believe this is the appropriate way to suggest going private,” Charles Elson, director of the John L Weinberg Center for Corporate Governance at the University of Delaware, told CNBC.

Trading in Tesla was halted for an hour and a half on Tuesday afternoon, by which time the stock had soared to $370.

In that time, Tesla short-sellers – Musk’s sworn enemies – may have lost more than $800m, according to estimates from financial-technology firm S3 Partners, while his 20% stake reportedly gained $851m.

Compliance experts are still arguing about whether Musk could face official censure.

If the content of Musk’s tweet was not true, lawyers argue, it could expose Tesla’s unpredictable chief executive officer and the company to regulatory action and private lawsuits.

While the US stock market regulator permits executives of publicly listed companies to use social media to make statements about their businesses, former SEC chair Harvey Pitt told Fox on Wednesday that it was “highly unprecedented” that Musk made the announcement during the trading day.

“Announcements of this kind move markets as we saw and they are made either before the opening of the market or after the close. He did not do that.”

A day earlier, Pitt told CNBC that the timing of the announcement “raises significant questions about what his intent was.” But on Fox, Pitt made the point that officers of public companies cannot make deals alone.

“He personally cannot secure private transactions,” Pitt said. “It requires the approval of independents on his board and shareholder approval. So for the CEO to be announcing this and announcing his price is also very unusual.”

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