Musk tweets vs. SEC, the invisible war between business and regulation in the age of social media

Tesla CEO Elon Musk publicly mocked the U.S. Securities and Exchange Commission (SEC) even after settling fraud claims with the commission.

Tesla CEO Elon Musk publicly mocks the SEC even after settling fraud claims with the commission.

Musk tweets vs. SEC, the invisible war between business and regulation in the age of social media

The SEC warned Tesla last year that its chief executive, Elon Musk, had twice violated court-ordered policies on Twitter and mandated that his tweets be posted only after prior approval by the company’s lawyers, the Wall Street Journal reported.

Tesla and the SEC settled an enforcement action in 2018 alleging that Musk committed fraud by tweeting about a possible takeover of his company. Musk paid $20 million out of his personal pocket to settle the case, and Tesla paid $20 million and agreed to have Tesla lawyers monitor his public statements on social media.

In letters sent to Tesla in 2019 and 2020, the SEC said Musk wrote tweets about Tesla’s solar roof production and stock price without the required review by Tesla’s lawyers. The communications, which have not been reported before, highlight tensions between the top U.S. corporate regulator and Musk, who has even publicly mocked the agency after settling fraud claims with the SEC.

Musk tweets vs. SEC, the invisible war between business and regulation in the age of social media

The SEC told Tesla in May 2020 that the company had failed to “perform the required review process and repeatedly condoned Mr. Musk’s violations.” The letter was signed by Steven Buchholz, a senior official in the SEC’s San Francisco office, who added: “Tesla has abdicated the duties required of it by the courts.”

Musk’s dispute with the SEC is part of a pattern of him and Tesla skirting rules or escaping enforcement sanctions, The New York Times reported in April. Tesla has also clashed with the National Transportation Safety Board and Nevada’s Occupational Safety and Health Administration officials. SpaceX, another company run by Musk, has also at times clashed with the Federal Aviation Administration.

The requirement that social media messages be reviewed and approved by lawyers is one of the SEC’s unusual enforcement requirements, which regulators used as a way to improve Tesla’s corporate governance after a 2018 investigation. The agreement also requires Mr. Musk to relinquish his role as chairman and for Tesla to appoint two independent directors. Musk and Tesla stonewalled the SEC’s investigation without admitting or denying wrongdoing.

From the outset, the SEC has had difficulty enforcing the social media ban. The SEC charged Musk with violating the ban in February 2019 and asked a federal court in Manhattan to consider it as contempt of court. The judge said she wanted the parties to resolve the dispute and they agreed to revise the policy to clarify what content required pre-approval. Those elements were determined to include communications about production figures, new lines of business and the company’s financial condition.

Within months, the SEC wrote to Tesla again, questioning a tweet Mr. Musk posted on July 29, 2019, that “are starting production lines quickly. Hoping to produce by end of this year, (with) capacity of ~1,000 solar roofs/week.”

In an August 2019 letter to Tesla, the SEC wrote that that tweet fell under the scope of review, which is any request for public information involving “production figures or sales or delivery figures.” Tesla told the agency that Musk had not submitted the tweet for review, and that a certain committee at Tesla later determined it was not subject to review because it was “fully compliant,” according to the SEC’s description of its communications with the company.

Less than a year later, on May 1, 2020, Tesla’s stock price fell after Mr. Musk tweeted that “Tesla’s stock price is too high imo.” This led directly to Buchholz writing another letter to Tesla.

Tesla told the SEC that its lawyers had not reviewed that tweet, which the company described as a “personal opinion” that did not require review, according to the SEC’s letter. In its May 8, 2020, letter to Tesla, the SEC wrote that when the SEC sought records related to the tweet, Tesla said it did not have any. The SEC added that Musk’s tweet concerned the company’s finances, a topic subject to the injunction.

Mr. Musk has repeatedly refused to submit his tweets to Tesla for pre-clearance, and Tesla has repeatedly determined that there are no alleged “violations” because of them,” the SEC wrote in the letter. We are very concerned about this,”

Tesla’s outside lawyers responded later that month that tweeting about Tesla’s stock price was not covered by the ban, according to a copy of the letter obtained by The New York Times. The lawyers said regulators had tried to “harass Tesla and silence Mr. Musk” through “endlessly repetitive” investigations.

Lawyer Alex Spiro wrote: “The frequency of these investigations raises serious suspicions that the SEC is targeting Mr. Musk for improper purposes.”

Musk has sometimes been sharply critical of regulators, sometimes even a bit vulgar, referring in a tweet published in July to “SEC, a three-letter acronym with the word Elon’s in the middle.” When reminded that this is dangerous behavior, he replied, “But it’s really cool.”

Musk tweets vs. SEC, the invisible war between business and regulation in the age of social media

In a June 2020 letter to Tesla’s lawyers, the SEC said it wanted to settle the disagreement out of court. The letter shows that the dispute appears to have ended in a stalemate, without any adverse consequences for Tesla or Musk. Tesla’s lawyers objected to the SEC’s claims about the tweets, and the SEC never elevated the issue to court to ask a judge to intervene.

The SEC made a request in its June 2020 letter.” We urge the company to reconsider its position on this matter and take action to implement and enforce the relevant regulatory procedures …… to avoid further harm to shareholders.”

Jill Fisch, a law professor at the University of Pennsylvania, said the controversy over Mr. Musk’s tweet does not mean the order is wrong. She said companies and CEOs are still working out how to use social media in a regulated way, and that oversight by regulators could help improve the situation. Leaders like Mr. Musk, who have a strong influence on the marketplace, deserve special attention, she said.

Ms. Fisch said, “It’s difficult to draft a proper decree within the scope of freedom of expression. After all, it is the first time that that legal tool cannot be perfect.”

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/musk-tweets-vs-sec-the-invisible-war-between-business-and-regulation-in-the-age-of-social-media/
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