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SEC sues Tesla's Musk for "fraudulent" social media posts

BIScom Subsection: 
Editorial Staff

It's now clear: posting message on social media such as twitter, facebook and instagram is regarded by the USA's Securities and Exchange Commission in the same light as any other statement and the consequences for false or misleading information are the same as any other means of disseminating such information. Elon Musk, hardly a shrinking violet when it comes to grabbing headlines for his various ventures, is the defendant in a civil action brought by the SEC: what happens here will define both how corporations use social media and whether others who have posted material they should not have done will be brought to book.

Yesterday, the SEC sued Musk (they say "charged" but it's a civil action not a criminal charge) "with securities fraud for a series of false and misleading tweets about a potential transaction to take Tesla private."

Musk is a bit of a social media star: he's got some 22 million followers on twitter alone. That's roughly half that of US President Donald Trump who, of course, has much of the world's media looking in to see what he'll tweet in the middle of the night between hamburgers.

On 7 August, Musk caused the twittersphere, the blogosphere and the mainstream media to toss aside almost all real news until they had repeated Musk's comment that he intended to take Tesla, the not-as-successful as PR suggests electric car company, private, that funding was in place and that the price paid would be more than the current share price. The result was the Tesla's share price increased, on that day, by more than six percent. Musk appeared to say that the only outstanding matter was to secure agreement from the existing shareholders.

The SEC alleges "in truth, 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."

The action has been issued in the federal district court for the Southern District of New York. That's in the area of the Manhattan District Attorney's office which may become involved if criminal market manipulation can be established.

Steven Peikin, a Co-Director of the SEC’s Enforcement Division said “An officer’s celebrity status or reputation as a technological innovator does not give licence to take [responsibilities to shareholders] lightly.”

Stephanie Avakian, also a Co-Director of the SEC’s Enforcement Division said "Taking care to provide truthful and accurate information is among a CEO’s most critical obligations. That standard applies with equal force when the communications are made via social media or another non-traditional form." She kind of missed the point: it's the same as if it's made in any form, including both "non-traditional" and traditional form. After all, social media is, in truth, nothing more than a development of bulletin boards or chat rooms and they have been the playground of market manipulators for more than a quarter of a century. It's hard to consider social media as "non-traditional," these days.

The SEC is setting out its stall asking for the maximum under its powers. The complaint "alleges that Musk violated anti-fraud provisions of the federal securities laws and seeks a permanent injunction," surrender of profits made ("disgorgement" in American), "civil penalties and a bar prohibiting Musk from serving as an officer or director of a public company."

If the Court makes such an Order, Musk will be out of the company - on the face of it. A similar order made against Martha Stewart saw her appointed as a non-executive but nevertheless in a senior position. That does not, of course, take into account the criminal aspects which saw her jailed not, as many think, for insider trading but for obstruction of justice that included lying to investigators.

Musk's twitter account has been strangely quiet for the past two days and there is no mention of the SEC's action. Media reports widely say they have not been able to elicit a comment from him although Techcrunch says he's sent them an e-mail describing the SEC's action as "unjustifed" and leaving him "deeply saddened."

Further Reading

SEC complaint: https://www.sec.gov/litigation...