On August 7, Tesla co-founder and CEO Elon Musk tweeted “Am considering taking Tesla private at $420. Funding Secured.” Mr. Musk has a wide following on Twitter, and he has already courted controversy as a result of a number of tweets. This particular tweet, however, attracted considerable attention largely because some in the market treated it as, in effect, an announcement of a takeover bid. The share price of Tesla rose by more than ten percent, from $344 at the start of the day to $379.57 at close. The tweet was not preceded by any regulatory filings or official Tesla news releases. While there have been numerous examples of ill-considered social media use causing PR headaches for corporations and their executives, this particular tweet underlines that communications made on social media can have legal implications as well.
Musk’s statement caused many in the media to question whether there had been a violation of US securities law. For example, in an interview with CNBC, former SEC Charmain Harvey Pitt noted, “[i]f his comments were issued for the purpose of moving the price of the stock, that could be manipulation, it could also be securities fraud.” Meanwhile, Columbia Law professor John C. Coffee Jr. commented that Musk’s statement that funding was secured is “a clear factual statement” and that “[i]f it’s not fully secure, that’s potentially a very material misrepresentation.” At present, the Wall Street Journal has reported that the SEC is making inquiries, but it is unknown if any formal enforcement investigations have been opened.
If the SEC becomes further involved as a result of Mr. Musk’s tweet, it would not be the first time that statements made on Twitter have attracted the attention of securities regulators. In 2015, the SEC filed criminal securities fraud charges against a Twitter user for making false claims on Twitter in an effort to drive down stock prices and profit from illegal trading. In late 2017, a misinterpreted tweet from a San Francisco-based short-selling firm caused shares of Canadian leasing company to fall by forty percent.
While communications made over social media are often considered to be casual, words used in the English language bear the same meaning on Twitter that they do anywhere else, and information conveyed over Twitter has the same import that it does if it is conveyed in a press release or a securities filing. Accordingly, the risks of ill-considered tweeting by company insiders can be considerable. Executives understand that every word they say on a quarterly earnings call, for example, will be parsed and interpreted, and enormous care is taken to ensure that information is accurate, and conveyed with appropriate caveats. It is mystifying, therefore, that there have been so many cases of corporate executives saying things on Twitter that they would never even consider saying in another forum.
Whether Mr. Musk’s tweet attracts greater attention from any regulators remains to be seen. Whether it does or does not, however, it created a completely avoidable issue for the company. The immediacy of social media, and its ability to connect corporations and their executives directly with their customers means it is tremendously valuable. However, this case is an important reminder to tweet with caution. In particular, directors and officers, and other employees who may be seen as a representative of a company, should be conscious of the fact that the legal implications of messages sent over social media can be significant.