Legal Consequences of a ‘Tweet’
On 7 August 2018, Elon Musk published two (2) twitter posts which led to an avalanche of repercussions.
The first tweet stated, “taking Tesla private at $420 million, funding secured” followed by “only reason why this is not certain is that its contingent on shareholder vote”.
Shortly after these publications, Tesla’s share price initially jumped as a result of Mr Musk’s assurance, however, then took an immediate nosedive after the proposal fell apart in less than three weeks.
The US Securities and Exchange Commission (SEC) accused Musk of securities fraud, which under their SEC rule 10b-5 is “to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of circumstances under which they are made, not misleading… in connection with the purchase of sale of any security”. In a non-legislative manner this translates to, saying something fictitious or retaining important information in secrecy, which could affect an investors decision.
This led to SEC to pursue legal action against Musk and Tesla with regard to the tweet to make Tesla private, asserting that a series of materially false and misleading statements caused the company stock price to jump and then flounder. The proceeding was ultimately settled, resulting in Musk and Tesla paying an amount of $40 million USD, with half of this amount to be payable to the investors through the SEC deal.
Fast forward to the beginning of 2023, a Federal civil trial ensued in San Francisco lasting 3 weeks. Investors sued Musk and the company’s board for losses (damages) suffered from his August 2018 tweets. The Investors submitted that Musk’s statement about his embryonic plan to take the electric car company private had devasting financial consequences for them.
On 3 February 2023, a jury decided within an hour that Musk was not liable for losses suffered by the investors from the 2018 tweets. Lawyers representing Musk and Tesla, argued that due to Mr Musk’s inherent success and wealth, he could easily have obtained financing to take Tesla private irrespective of any perception of shareholders.
Although the Federal civil trial was a win for Musk and assists in vindicating him, it still raises issues regarding the use of social media to relay information, with regard to a corporation, without being vetted first. Charles Whitehead a professor of Law at Cornell Law School addresses the perilous situation of securities law and social media platforms, stating that the “in the old world of paper you had to undertake some real effort to get the information out there, now you can type something into your iPhone and out it goes”.
In Australia we have the Australian Securities Investment Commission (ASIC) which regulates corporate markets, financial services and consumer credit. ASIC is governed by the Australian Securities and Investments Commission Act 2001 (ASIC Act) and carries out most of their work under the Corporations Act 2001 (Cth). In the event of misconduct by a cooperation or its director, ASIC has the authority to take relevant action to give effect to the law under the Corporations Act.
In the event you need legal advice with regard to your rights under either the Corporations Act or the ASIC Act, please do not hesitate to contact Salerno Law’s corporate and commercial team.”
Author Sarina Yusuff