Securities Law: Do You Actually Tweet That?


“Was this text legit?” was the reaction by Tesla’s head of investor relations to the August 7, 2018 tweet made by Tesla Chairman Elon Musk stating that Mr. Must was considering taking Tesla private.

Since that time, there has been a great deal of reporting on the tweets made by Mr. Musk, who tweeted numerous times on August 7th that he was considering taking Tesla private at $420 per share and had secured the funding to do so. The SEC, NASDAQ and investors immediately began to investigate whether these tweets were accurate or not.

In September 2018, the SEC filed a complaint against Mr. Musk for making false and misleading statements, via his Twitter account, which had over 22 million followers, about an offer that had not actually been received by Tesla. Tesla’s stock price went up on August 7th and it was alleged by the SEC that Mr. Musk and Tesla had caused harm to their shareholders.

Tesla and Mr. Musk resolved the SEC complaints by agreeing to each pay $20 million to a fund that will be administered by a court and thereby distributed to shareholders who were injured by these tweets of Mr. Musk. Mr. Musk also agreed to step down as chairman of the Board for at least three years and Tesla agreed to make certain changes to its corporate structure.

Twitter started in 2006. For the first six months of 2018, Twitter averaged 336 million monthly users. It used to be that when EF Hutton spoke, people listened. Fast forward 30 plus years and now when someone tweets, there are people listening and, in some instances, believing what is being tweeted. In the case of Tesla, almost 22 million people are listening.

There have been several SEC enforcement actions against individuals tweeting false information about companies and investments that have caused harm to the investing public. One investor tweeted false and materially misleading information about two separate public companies that caused these stocks to decline drastically within hours of his tweets. In another case, a woman in Hawaii falsely portrayed herself as a savvy investment advisor and swindled fellow Twitter users who believed her predictions and statements.

We all know that not everything on the Internet is true. Well, the same is true for all social media such as Twitter, Facebook and Instagram, to name a few. Beware of people making claims on social media – it is the Internet and there is no one fact checking what people are tweeting. Before you make an investment decision, do your due diligence and talk to financial advisors.

By the way, in the SEC complaint, Mr. Musk said that he arrived at the $420 stock price based upon a 20% premium over that day’s closing price which resulted in a $419 stock price. He rounded it up to $420 because that number has significance in the marijuana culture and he thought “… his girlfriend would find it funny, which is admittedly not a great reason to pick a price.” This from a man that the Tesla Board wanted to grant a $2.6 Billion pay package.

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