The SEC tends to go after high-profile cases such as Musk's to set an example and send a message to other executives who may view Twitter as a platform for disclosures. (Photo: Patrick T. Fallon/Bloomberg)
Elon Musk is not the only person guilty of oversharing on Twitter. But he may the first person to be targeted by the U.S. Securities and Exchange Commission because of it.
The SEC sued Tesla's founder and chief executive officer in the U.S. District Court for the Southern District of New York on Thursday, claiming Musk made “false and misleading” statements in his Aug. 7 tweets, and called for his removal as CEO. In the tweets, Musk claimed he had funding secured to take Tesla private at $420 per share.
On Saturday, Musk and Tesla settled the suit for $40 million and Musk agreed to step down as chairman. He'll stay on as CEO for now.
University of Toledo law professor Eric Chaffee said that the SEC has begun taking a closer look at social media posts and online communications recently.
But, he said, “I haven't seen anything else of this magnitude before.”
Musk's status as the CEO of a large company and the fact he is a celebrity in his own right with a large online following probably hasn't helped him in this case. Chaffee said the SEC tends to go after high-profile cases to set an example and send a message to other executives who may view Twitter as a platform for disclosures.
“They pick cases that are going to be relatively high profile, that provide notice to others … that the SEC will be looking at them, or looking for people who may potentially be violating securities law using social media,” Chaffee said.
University of Pennsylvania law professor Jill Fisch recalled Martha Stewart's insider trading case, which also saw a company's leader removed from a leadership role. Fisch said Stewart and Musk could be the SEC's way of showing executives with power aren't above the law, and to set an example.
Drinker Biddle partner JR Lanis said the SEC pursuing tweeted disclosures is new. Usually, he said, such suits stem from a press release or statement issued before a company has thought through all the items mentioned.
He also noted the SEC's speed in pressing charges.
“The SEC typically is not a fast-moving institution, and these [tweets] didn't happen all that long ago,” he said.
There could be two reasons for this sense of urgency, according to Lanis. One could be, as others have said, to set an example for other social media-happy executives to dissuade them from similar disclosures. Musk's fame also could have put the SEC under increased pressure to do something, with the public watching.
“It's got a lot of publicity, so the government doesn't want to be perceived as sitting around doing nothing,” Lanis said.
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Caroline Spiezio
Caroline covers the intersection of tech and law for Corporate Counsel. She's based in San Francisco. Find her on Twitter @CarolineSpiezio.
