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Scottish Mortgage shares shrug off Musk fraud charge

Scottish Mortgage shares shrug off Musk fraud charge

The Securities and Exchange Commission (SEC) has charged Tesla (TLSA.O) chief executive Elon Musk with fraud for a series of tweets in early August about potentially taking the electric car maker private.

Shares in Tesla, which had closed 0.7%  lower in official Wall Street trading, sank by as much as 11% in after-hours trading on the news.

The news will be a blow to Edinburgh fund group Baillie Gifford, which is second only to Musk on Tesla's share register, holding 7.7% of the company, according to Reuters figures.

The £7.9 billion Scottish Mortgage (SMT) investment trust is the largest single UK fund shareholder, with a 5.1% portfolio position.

Shares in Scottish Mortgage dropped marginally, 1.7p lower at 542.5p. 

Shares in the Baillie Gifford US Growth (USA) investment trust, which has a 4.5% position, rose 0.3% to 133.9p.

Tesla is also a major holding for a number of Baillie Gifford's open-ended funds. Those with a top 10 holding in the stocks include the Baillie Gifford American, Positive Change and Long Term Global Growth funds.

Musk roiled the markets on 7 August after announcing to his 22 million Twitter followers that he was considering plans to take the electric automaker private at $420 a share.

The tweet was followed hours later by an official blog post from the Tesla website, which reiterated a memo sent to Tesla employees about Musk’s intention to privatize the electric car maker.

The tweets attracted investor uproar and SEC inquiries, specifically with regards to Musk's alluding that he has secured funding for the buyout deal.

However, on  24 August 24 Musk announced that after working with Silver Lake, Goldman Sachs and Morgan Stanley, he had decided that Tesla would be better off as a public company.

The SEC alleges that Musk had not discussed specific deal terms with any potential financing partners, and he allegedly knew that the potential transaction was uncertain and subject to numerous contingencies.

You can read the SEC's full complaint against Musk here.

The agency said in the complaint that Musk’s tweets caused Tesla’s stock price to jump by over 6% on August 7, and led to significant market disruption.

The SEC is also seeking to ban Musk from acting as an officer or director of any public company, adding that he lied to investors when he said he had secured funding for taking Tesla private when in fact he had not. 

‘Corporate officers hold positions of trust in our markets and have important responsibilities to shareholders,’ said Steven Peikin, co-director of the SEC’s enforcement division.  ‘An officer’s celebrity status or reputation as a technological innovator does not give license to take those responsibilities lightly.’

Musk has hit back with a statement on the SEC's allegation, that has been widely circulated on social media.

The statement, which was run on Bloomberg, said: 'This unjustified action by the SEC leaves me deeply saddened and disappointed. I have always taken action in the best interests of truth, transparency and investors. Integrity is the most important value in my life and the facts will show I never compromised this in any way.'

The SEC specifically mentioned that Musk used Twitter as a channel to communicate with millions of people as a Tesla spokesperson.

The agency said in the complaint that Tesla’s chief financial officer described Musk’s Twitter statements as a ‘strong channel of marketing’ with Musk acting as a ‘spokesman’ for Tesla.

‘Taking care to provide truthful and accurate information is among a CEO’s most critical obligations,’ said Stephanie Avakian, co-director of the SEC’s enforcement division. ‘That standard applies with equal force when the communications are made via social media or another non-traditional form.’

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