Elon Musk’s Tesla controversy is a case study on how not to use Twitter – The Hollywood Reporter

Long before Elon Musk called himself the “head of twit,” he was a prolific Twitter user. Among his more than 22,000 tweets, there is one subject that has plagued him financially and legally for years. On August 7, 2018, Musk posted this announcement on Twitter: “I’m considering buying a Tesla at $420. Funding is guaranteed.”

That tweet, and several others, cost him $20 million in a settlement with the Securities and Exchange Commission, which claims it was a series of false statements and misleading the company has sent the stock price soaring – and that tab could go up depending on a jury verdict in the ongoing securities class action lawsuit, not to mention growing legal fees his. (Tesla had to pay an additional $20 million to investors through a settlement with the SEC.)

The tycoon is charged with securities fraud, which, under SEC rule 10b-5, is “making any false statement about a material fact or omitting to state a material fact necessary to bring about statements are made, under the circumstances in which they were made, that are not misleading… in connection with the purchase or sale of any securities.” In a non-regulatory way, it is knowingly saying something untrue or keeping important information secret, which can influence an investor’s decision.

Musk testified that those tweets were “absolutely true to what I believe.”

“The regulation is designed to ensure that investors are not misled and to ensure that they have the information they need to make the right decisions,” said USC professor Larry Harris, former chief economist for the SEC. know. “We have a long history of people manipulating prices by saying inappropriate things. It doesn’t matter if the communication is misleading or not.”

Musk’s case is shedding light on the stock issues raised by the social network and the near-immediate impact and wide reach of posts on platforms like Twitter, Facebook and Instagram, and experts say this should be a warning.

Duke Law professor Jim Cox, who specializes in corporate and securities law, said: “Tweeting can get you into a lot of trouble, especially if you have a large following. He notes that when it comes to trading, there is always a frantic race for information to gain an edge and make money. [by investors]. Anyone with a connection to a publicly traded company should exercise extreme caution in their statements. You can easily find yourself on the wrong track in a class action lawsuit.”

And Cox emphasized that an investor wouldn’t even need to know about the tweet that made the market a member of the class. “It’s enough that it happened,” he said. “Market fraud is the theory that guides all securities fraud. Important information is reflected rapidly in the stock price of that company, so it affects all individuals who buy that stock during the period affected by the misinformation.”

In Musk’s case – expected to be shown before a grand jury before the weekend – certified class is everyone who has bought or sold Tesla stock, options and other securities since 12:48 p.m. EDT on August 7, 2018 to August 17, 2018 and damaged, except for Tesla employees, directors, and their families.

The Tesla CEO took a stand on January 20 and argued, somewhat ironically, that any misinterpretation of his words was due to limitations of the platform for which he had just paid 44 billion. USD to buy. “The character limit can’t be ignored, and everyone on Twitter knows about the character limit,” Musk said. “I think you can be completely honest. But can you be comprehensive? Of course not.” He continued, “The tweets are honest. They are simply short. I think you are trying to combine misleading with short.

However, according to experts, the means is not important when applying securities laws. Or, as Cornell Law School professor Charles Whitehead put it, “whether it’s paper or electronic used to deliver information.”

Whitehead, whose expertise includes securities law, added: “The fact that Twitter only allows 280 characters is not a defense. The key focus is on making sure that what you disclose is materially correct. Stage. Dots. If the mechanism you’re using to distribute information doesn’t allow you to, find another one.”

Musk isn’t the first celebrity to attract the ire of stock regulators and investors, and he won’t be the last. Executives and other representatives, like celebrity advocates, should tread carefully, experts say, and so should investors.

“If a CEO says something on Twitter or any other social media platform, chances are people will notice it,” says Harris. “We want insiders to share true and honest information because it helps us buy stocks better and reduce insider trading, but it has to be done in a disciplined manner. It really cannot be dishonest because it has the potential to be manipulated.”

One of the problems, possibly the biggest, is the immediacy of social media. When a company prepares an 8-K filing to share important information with shareholders or write a press release to make an important announcement, that wording is often carefully considered. Tweet? Not much.

“It lacks the traditional brakes we had before the internet,” says Whitehead. “In the old world of newspapers, you had to make some real effort to get the information out there. Now you can type something into your iPhone and it should work. There is an argument for a process that throws some sand in the gear to slow it down. It’s one of those odd situations where there’s really value to inefficiency.”