Elon Musk Tweet Upsets SEC
This particular tweet might see Elon further in trouble with the Securities and Exchange Commission yet, but when you are that influential, and responsible for so much, it isn’t surprising that such a tweet upsets SEC.
What’s all the fuss about? The tweet in question said,
“Am considering taking Tesla private at $420, funding secured.”
The S.E.C. is now investigating if Mr. Musk, violated federal securities laws and whether he misled investors.
With Tesla already under investigation for its Model 3 vehicle, which includes a subpoena from the S.E.C. to a parts supplier, he must be careful when dealing with them.
We must remember that a formal investigation does not mean there will be a case filed against Tesla or Mr. Musk. It does mean that the S.E.C. is committing resources to an investigation.
The speculation is the primary focus of the investigation will be if the tweet in question violated Rule 10b-5, which is the primary antifraud rule, by misleading investors which can affect the value of shares. Something that is not difficult for a social influencer like Elon.
The S.E.C. with its investigation could bar Mr. Musk, if found guilty, from serving as director or as an office of a public company. If this were to happen, Mr. Musk could be forced out of Tesla, further preventing him from any leadership role if Tesla was taken private.
Mr. Musk’ defense to a potential fraud charge could have him argue that at the time of his statement he believed there was sufficient financing. Either way, the investigation is initiated and each side will have to prove their point. Did Mr. Musk try to drive up or down shares; did he act in a reckless manner?
Difficult for the S.E.C.
It will be difficult for the S.E.C. to prove a violation of Rule 10b-5 and that the person in question acted with that specific purpose or intent, even if a simple tweet upsets SEC.
Making a case based on a single tweet would be difficult, even if the statement did drive up Tesla’s stocks.
The S.E.C. could pursue fraud charges under Section 17(a), although the S.E.C. has to prove negligence only in the sale of securities that involved a fraud or deceit upon the purchaser.
Under this charge, the ability of the company to issue shares would not be affected, because it would claim that it was negligence and not fraud.
With this said, if Mr. Musk has the intention of taking Tesla private, he will need to work with the S.E.C. for a quick resolution. Not an easy road ahead but a necessary one if funding is sought in the near future.
Tweet Upsets SEC
Sonia Rina Davies is a passionate entrepreneur, speaker, author, and personal development coach. She is an outspoken advocate of the free market economy and has helped countless clients identify their core values, envision and realize goals that resonate with those values. She oversees several businesses both online and offline.