Business Litigation Alert: Elon Musk Tweets His Way Into The SEC’s Crosshairs

Porter Hedges LLP

Porter Hedges LLP

As we have discussed in previous newsletters, Tesla is in a very difficult position based on the actions of CEO Elon Musk.  With one tweet about the company going private, he put the company directly in the sights of the Securities and Exchange Commission (SEC) and a securities fraud lawsuit.

On Saturday, the SEC reached a settlement with Musk. Under the terms of the settlement, Musk doesn't admit or deny the allegations in the agency's lawsuit against him, but he will step down as the chairman of Tesla's board of directors and pay a $20 million fine. This highlights the significant damage company officers and other employees can do when making public statements using social media. 

Officers, directors, and employees who are privy to confidential or even sensitive information must be particularly careful when speaking with media, utilizing social media, or speaking in any kind of a public forum to ensure that they are not disclosing any confidential or sensitive information or making false statements.  At a minimum, this means policies and training must be in place so that everyone is fully aware of what they should and should not say in public.

  1. Prepare social media policies that are clearly communicated.  All employees should know what they can and cannot say about the company on social media.  This is particularly important for officers and directors with sensitive information who could inadvertently share something that could draw scrutiny.
  2. Conduct media training for any spokespeople.  Anyone who is representing the company in a public forum should have media training so that they know not only what to say, but most importantly what information should not be shared with the media or in a public setting.  If there is any doubt regarding a particular planned “announcement,” consult with the company’s lawyer first!
  3. Establish damage control procedures.  Your company should not wait for a damaging public comment to be made before putting procedures in place on how to deal with it.  It is important to examine a variety of situations – whether it is a quote in the media that reflects poorly on the company or a social media post that opens the company up to investigation.  Look at anything and everything and know in advance how you will respond.

The situation with Tesla and Elon Musk has taken a dramatic turn.  Following the SEC’s announcement of the filing of the lawsuit on Thursday, Tesla stock dropped over 13%.  This situation clearly demonstrates the damage just one tweet can cause and the importance of policies, training, and preparation for companies so they do not find themselves in a similar situation.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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