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Tesla investor sues Elon Musk over 'erratic' tweets.

By Snehal Khemka Snehal Khemka      Mar 17, 2021      0 Comments      1,704 Views
Tesla investor Elon Musk

Elon Musk and the Tesla board are facing a lawsuit from an investor who alleged a number of Musk's comments on Twitter violated a settlement with the Securities and Exchange Commission meant to temper his communications. 

The complaint unsealed on a late Thursday (March 11, 2021) in Delaware Chancery Court, revealed names the electric car company's board as defendants, Musk's "erratic" tweets and the failure of Tesla directors to ensure he complied with the SEC settlement have exposed shareholders to substantial damage including billions of dollars of losses.

In 2018, the SEC charged Musk with securities fraud for a tweet saying he would take Tesla private if the stock price hit $420. The parties came to a settlement, in which Musk was forced to step down as the company's chairman and Tesla was required to put in place procedures to oversee Musk’s communications relevant to Tesla shareholders.

According to the plaintiff, Musk's actions and the directors' inaction have caused "substantial financial harm," and that damages should be paid to Palo Alto, California-based Tesla for breaching their fiduciary duties. 

The lawsuit was filed even though Tesla's share price has soared nearly fivefold since Musk's "too high" tweet, giving Tesla a valuation well above $600 billion, and the SEC has not publicly accused Musk of recent violations.

To quote Charles Elson, a University of Delaware professor and corporate governance specialist "It could pressure the SEC into taking some sort of recourse," 

Even though the SEC settlement followed Musk's August 2018 tweet that he had funding secured to possibly take Tesla private in a $72 billion transaction, In reality, however Musk was not close. Musk and Tesla each paid $20 million in civil fines, with Tesla lawyers agreeing to vet some of Musk's tweets in advance. 

Later on, the settlement was amended to clarify when pre-approvals were required, prompted by a tweet by Musk about Tesla's vehicle production forecast. A San Francisco federal judge on last April said Tesla and Musk must face a lawsuit claiming Musk's going-private tweet defrauded shareholders. 

The tweet resulted in Musk and Tesla reaching a settlement of fraud charges with the SEC with the settlement finally including $40 million in penalties, split equally between the company and Musk, and the removal of Musk as chairman of the Tesla board.

The case of Gharrity v Musk et al, Delaware Chancery Court, No. 2021-0199 remains pending.

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