Elon Musk contempt hearing ends in strongly amended settlement agreement

[kuhnertdm]

Source: https://www.cnn.com/2019/04/26/tech/elon-musk-sec-settlement/index.html

Source for full list of material information: https://techcrunch.com/2019/04/26/elon-musk-sec-agree-to-guidelines-on-twitter-use/

 

Background: Elon Musk was brought to court by the SEC last year for securities fraud after he tweeted an untrue statement that Tesla was willing and able to go private at $420 per share, which caused stock prices for Tesla to jump instantly. They settled with an agreement that:

• Musk and Tesla would pay $20 million each in fines which would go to investors harmed by the fraudulent statement
• Musk would step down as chairman of the board at Tesla for at least 3 years, but could remain CEO
• Tesla would add two new independent members to its board of directors
• Tesla would implement a system where any Tweet that Musk makes that could reasonably be considered "material" to investors must be reviewed and approved by a securities lawyer

The last point of the agreement was supposedly broken earlier this year when Musk tweeted an incorrect projection of Tesla's production in 2019 (The tweeted number was 25% higher than the actual agreed-upon projection made to investors by Tesla). Tesla admitted upon inquiry by the SEC that their securities lawyer was not asked to review the tweet, but later saw it and instructed Musk to tweet a correction. The SEC then asked federal judge Alison Nathan to hold Musk and Tesla in contempt of court for knowingly breaking their settlement agreement.

 

Story: The contempt hearing itself has now been settled. During the hearing, Musk and Tesla's argument was that the original settlement did not define what was "material to investors", and as such, Musk himself should be the person who decides what is material for legal purposes (effectively meaning that nothing would ever have to go through the lawyer, no matter what it said). Judge Nathan enforced that Musk and the SEC should amend the agreement so that in the future, Musk would not be able to use this loophole to tweet whatever information he wants (even if it could reasonably be considered material). The agreement was amended to explicitly define "material information" as:

• any information about the company’s financial condition or guidance, potential or proposed mergers, acquisitions or joint ventures,
• production numbers or sales or delivery number (actual, forecasted, or projected),
• new or proposed business lines that are unrelated to then-existing business lines (presently includes vehicles, transportation, and sustainable energy products);
• projection, forecast, or estimate numbers regarding Tesla’s business that have not been previously published in official company guidance
• events regarding the company’s securities (including Musk’s acquisition or disposition of shares)
• nonpublic legal or regulatory findings or decisions;
• any event requiring the filing of a Form 8-K such as a change in control or a change in the company’s directors; any principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer, or any person performing similar functions

No further action will be taken towards Musk or Tesla as a result of this contempt hearing, but it's safe to assume that now that this loophole is closed, the next time Musk tweets incorrect info to boost the stock prices, there will be actual action taken.

 

Opinion: I'm personally really disappointed in this decision, especially considering that:

• Musk's lawyer explicitly admitted during the hearing that, under their interpretation, there was literally nothing that Musk could do to break that part of the agreement
• The information that was tweeted out actually falls into the agreed-upon list of material information as the inflated projection was not published in official company guidance

That said, it's good that now there's essentially no room for Musk to escape if he tries to commit fraud in this way again.

[Sychic]

Elon's a danger to himself imo. At least he's not as bad with Trump on twitter.

[.Apex.]

I admire Elon's determination and achievements, but holy crap he needs to get off twitter, very impulsive

[straight_stewie]

I'm always wishy-washy about these kind of decisions.

On the one hand, the market was manipulated. On the other, it was never proven that Musk did it with the express intent of manipulating Tesla's value, and there are other reasons to "adjust" information about companies or their products (for example, most 600 cc motorcycles have between 580 and 598 cc engines, or how John Deere is the "biggest construction equipment provider", but only in total value of company, they don't move nearly as many yellow iron machines as CAT).

 

Then again, Elon needs to be stopped from doing that, given that it wasn't a one time issue. But on the flip side of that, there is now precedent that allows court enforceable censorship of what business owners/leaders can and cannot post on their personal social media accounts, and that's not a problem to be viewed lightly.

At best, a small group of investors won retribution, but they did so at the expense of an amount of freedom for business owners across the nation.

[Bananasplit_00]

How about they close twitter instead?

[kuhnertdm]

12 minutes ago, straight_stewie said:

there is now precedent that allows court enforceable censorship of what business owners/leaders can and cannot post on their personal social media accounts

Not exactly. Securities laws themselves have been pretty set in stone for a long time, and Tesla pretty much close the potential for argument of "but it's his personal account" when they routinely tell investors that Musk's account is an official source of Tesla business statements, along with the actual Tesla account. That's why that argument wasn't brought up at the hearing at all, and instead they decided to attack "what constitutes material information".

[Spotty]

- Moved to General Discussion -
Topic does not have a strong relevance to Tech so has been moved from the Tech News section

https://linustechtips.com/main/topic/11724-posting-guidelines-read-before-posting/

[CookieSmasherGus]

I think this explains why Elons twitter now is just a weird place for memes and screwing around. It's a bit ridiculous that a small tweet could cost so much, hopefully he learned his lesson.

[Guest]

Trust CNN to covert this baloney. It’s your own fault if you choose to invest based off social media. It’s made pretty clear, by Musk himself not to think of it as official.

 

Cant cure stupid, but you can try and sue with it in the US.

 

[BigRom]

4 hours ago, floofer said:

Trust CNN to covert this baloney. It’s your own fault if you choose to invest based off social media. It’s made pretty clear, by Musk himself not to think of it as official.

 

Cant cure stupid, but you can try and sue with it in the US.

 

I'm reading this and I'm just amazed people allow their investment decisions to be swayed so easily by Twitter of all things. 

If I'm making investments into a billion-dollar enterprise, the CEO/chairman's personal Twitter account is hardly what I would take as serious advice (especially when Elon Musk at this point is a certified billionaire memelord)

[Howitz]

lol people just have to see twitter for what it really is, something from where you can't take official information. Investors taking tweets from Elon for granted are like moronic kids who see a fake news headline and eat the onion.

 

The justice system is as stupid for following up with this whole twitter security fraud thing. Elon can say wathever he want if it's not specificly stated as official, he could say that he dismantle tesla on twitter tomorrow and it should have no legal backlash to him if the day after he decides not to.

 

anyone taking action on the market from reading such a tweet do it at his own peril with his own money (i hope) on a 100% self-reponsible way and elon (or anyone else for that matter) should not have to answer for those morons coming back whining on own they lost at the stock market.