A previous version incorrectly stated that Tesla never said in a public filing to look at Elon Musk’s Twitter feed, but there is at least one time the company did.
Even for a CEO with a reputation for making odd and incendiary remarks, Elon Musk’s Twitter output on Tuesday broke new ground.
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
With Elon Musk’s decision to tweet he was considering taking Tesla
private at $420 per share — and that he has funding for it — questions immediately swirl for both the company and federal law enforcement.
First, the tweet itself raises issues.
Regulation Fair Disclosure, or FD, requires companies “to distribute material information in a manner reasonably designed to get that information out to the general public broadly and non-exclusively.”
A post by Netflix CEO Reed Hastings on his personal Facebook page about the service’s
viewership triggered an investigation, but not enforcement action, by the Securities and Exchange Commission. The agency then clarified that a social-media post, on its own, is not enough, unless investors are warned ahead of time to watch that space.
Tesla was able to point to an 8-K from 2013 and a section that read, “interested in keeping up with Tesla?”
So Tesla did disclose that Elon Musk’s Twitter account may be used to disseminate “additional information” in a Nov. 2013 8-K filings with the SEC.https://t.co/MZTgSREmu2
Unsure why $TSLA has not added this to boilerplate for quarterly and annual reports.
— Jeremy C. Oweñs (@jowens510) August 8, 2018
And in that section, after first suggesting teslamotors.com for information on products, ir.teslamotors.com for Tesla investors, and teslamotors.com/press for press releases and the Tesla blog, it does read, “for additional information, please follow Elon Musk’s and Tesla’s Twitter accounts.”
Is that enough?
“If a company has always issued its earnings releases in a conventional matter, and it had not alerted investors, then that can be a problem, because an investor who happens to watch the Twitter feed, may have an unfair advantage,” said Ira Matetsky, a partner at Ganfer Shore Leeds & Zauderer in Manhattan.
Even in this situation, however, Musk’s position is unique. With over 22 million followers as of Tuesday, Musk’s Twitter presence is not obscure, and his tweet was nearly simultaneously broadcast through financial business media. Wouldn’t Musk’s lawyer argue that the tweet was available to everyone?
“I would certainly expect that point to be made,” Matetsky said. “I can’t think of a precedent.”
In this situation, however, the proposed offer price itself raises a question about Musk’s seriousness. Many thought the $420 figure was a joke, seeing as the number is suggestive of marijuana, as April 20, or 4/20, is a date celebrated by cannabis enthusiasts.
Later, Tesla published a letter from Musk to employees confirming he is considering a bid for the company at $420 per share.
The question still remains about whether he does have financing in place for a bid, regardless of how serious his contemplation is about a taking-private offer. If he hasn’t, then he has made a materially false statement. The stock surged in reaction, so the market took his comment at least somewhat seriously.
Matetsky pointed out the degree of liability for Musk depends on how serious or not this possible bid is.
“If he doesn’t have financing in place, but the deal happens anyway, then it may be, no harm, no foul,” he said. “If this was a pipe dream going nowhere, there will be a case.”
The SEC declined to comment.