SEC Legal Action Against Elon Musk Justified

The SEC announced last week that it has brought fraud charges against Tesla CEO Elon Musk over his tweets on August 7th claiming that he had secured funding to take the automaker private. The SEC’s action has already led to a steep drop in Tesla stock.

For some thoughts on what the SEC’s action means for Musk, Tesla and other companies using social media as a way to deal with investors, Lawyer Monthly heard from public company lawyer JR Lanis, a partner in Los Angeles and San Francisco with Drinker Biddle & Reath.

Mr. Lanis regularly advises public companies in meeting financial disclosure requirements, including those mandated by Sarbanes Oxley as well as rules governing stock exchanges.

“I think the SEC’s suit reinforces the idea that public company officers and directors should speak to counsel before making any public announcements regarding their companies,” Mr. Lanis said.  “The ‘what’ and ‘when’ of SEC disclosure is not to be taken lightly, and can result in criminal prosecution if not addressed in advance.”

The SEC noted that Musk tweeted that the company would be taken private with a $420 per share price, which would have been a more than 20% premium. The Commission’s complaint alleges that Musk “had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source.”

The lawsuit aims to force Musk from leadership of Tesla or any other public company, as well as hit him with financial penalties.

(Source: Drinker Biddle & Reath)