Elon Musk faces the music over 2018 Tesla tweets

Here’s what at stake in Elon Musk’s civil trial.
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· 4 min read

If you’ve been awake and on social media at any point this week, you’ve probably heard that the world’s second richest man is on trial in San Francisco. The Securities and Exchange Commission charged Elon Musk and Tesla with civil securities fraud for a pair of tweets he sent in 2018, in which he claimed he had secured funding to take Tesla private at $420 per share.

Tesla remains a publicly traded company, and Musk and Tesla settled separate charges from the SEC, agreeing to pay a total of $40 million in fines to investors. Musk also had to step down as chair of Tesla’s board.

How did we get here? The current trial is the result of a class-action civil lawsuit brought on behalf of  Tesla shareholders.

Investors allege that Musk committed fraud, saying that the company’s stock price swung by roughly $14 billion in the days after his tweets; the decision to hold Musk responsible for “financial harm” is now with the jury, as reported by NPR.

District Judge Edward Chen rejected Musk’s request to move the trial to Texas and ruled that Musk’s tweets were “false.”

Some 👀 points so far:

  • According to Bloomberg, Musk maintains that he “thought” he was “doing the right thing.”The tweets, he testified, came in an attempt to protect small investors after learning of a pending Financial Times article that would disclose the Saudi Public Investment Fund (PIF) acquiring up to a 5% stake in the company. The tweets, Musk said, reflected “absolutely what I believed” at the time he hit the send button.
  • Musk claims to have had verbal commitments from funders interested in going private, but acknowledged that no specific dollar amounts were given. Judge Chen, on two separate occasions, intervened to demand a simple yes or no answer to whether a specific dollar amount was mentioned.
  • And, Musk testified that his choice of a $420 stock price was “purely coincidental” and not a cannabis reference, as had been suggested earlier by the SEC.
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Never tweet? Daniel Kennedy, a partner at Kennedy Doyle, a law firm in Rocky Hill, Connecticut, says that all companies, including the executives in the C-suite, should proceed with caution when disseminating financial information, on social media or otherwise.

“Any use of social media for anything besides normal promotions and updates on the company should never happen,” Kennedy told CFO Brew. “Never should you be tweeting or posting on Instagram or Facebook financial information about the company.”

Though the SEC allows for earnings reports to be shared on social media, Kennedy believes that it’s not worth the risk. “We might advise companies to follow the traditional paths of issuing a press release or filing a document with the SEC,” Kennedy said, and added these are “the appropriate forms to disseminate information so it’s in the public sphere and it’s not limited to certain people or individuals.”

Companies, he added, should always lean on their compliance officers and counsels regarding disseminating sensitive financial information.

Musk’s action, Kennedy notes, seems to have resulted in the current mess the CEO of Tesla and Twitter finds himself in, and cost him and Tesla $40 million in SEC fines.

“These are steps that do get noticed by companies, their shareholders, and their independent boards,” Kennedy said.

According to Insider, the lawsuit is seeking “unspecified damages,” but with investors claiming they lost “billions,” Musk could end up paying a pretty penny if the jury rules against him. And still to be determined: the effect on Musk’s reputation, which has reportedly taken a hit since buying Twitter. Tesla’s stock price dropped 65% in 2022, but Musk argued in court that his tweets don’t affect the automaker’s stock price.

“Just because I tweet something, doesn’t mean people believe it or act accordingly,” he said. —LR

News built for finance pros

CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.