Elon Musk, Tesla Board Sued Over ‘Erratic’ Tweets

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Tesla’s Musk and company board sued over failure to rein in ‘erratic’ Twitter messages that allegedly violate 2018 SEC settlement

A Tesla investor has sued chief executive Elon Musk and the company’s board of directors, claiming they have failed to stem “erratic” Twitter messages that violate a regulatory settlement.

The lawsuit, unsealed in Delaware chancery court, claims the tweets expose Tesla to billions in potential liability and market losses and violate a 2018 US Securities and Exchange Commission settlement that requires oversight.

Further unchecked tweets could have “severe ramifications on the company’s ability to secure financing” while “driving out” voices in the company meant to present an independent stance, the complaint alleges.

The 105-page derivative lawsuit also accuses the electric vehicle manufacturer’s board of failing to rein in Musk’s online behaviour.

The Tesla Model X. Image credit: Tesla
The Tesla Model X. Image credit: Tesla

‘Funding secured’

The 2018 settlement followed an infamous August 2018 Twitter post in which Musk said funding was “secured” to take the company private, while in reality a deal was not close.

It required vetting of some of Musk’s posts and for Musk and Tesla to pay $20 million (£14m) each in civil penalties.

In April 2019, after a February 2019 tweet concerning Tesla’s manufacturing capacity, a new agreement clarified that Musk was free to use social media as he wishes, except in the case of particular types of events or financial milestones.

In such cases Musk must seek approval from a securities lawyer, according to the agreement filed with Manhattan federal court.

In spite of the settlement Musk has “continued to issue tweets without the required pre-approval”, the complaint alleges.

It charges that the Tesla board has failed to secure a general counsel who can provide advice “untainted by Musk”.

Oversight

It points out that three general counsels departed from the company in 2019, taking this as evidence that none were able to offer a voice independent of Musk’s own line.

The lawsuit cites as one example a 1 May 2020 Twitter message in which Musk opined that the company’s “stock price is too high”, sending it into a downward spiral that erased more than $13bn from Tesla’s market value.

Tesla’s share price has, however, grown nearly fivefold since that tweet and the company is currently valued at over $600bn.

The SEC has not publicly accused Musk of recent settlement violations, and it remains to be seen whether the lawsuit could pressure the regulator to take further action.

In April 2020 a San Francisco federal judge gave the go-ahead to a lawsuit claiming Musk’s message about taking the company public defrauded shareholders. That case remains pending.

The newly disclosed case is Gharrity v Musk et al, Delaware Chancery Court, No. 2021-0199.

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