Social media enables the fast and vast exchange of information – including the dissemination of information of interest to investors. The improper use of social media, however, can not only adversely affect markets, but can also lead to SEC enforcement actions and costly consequences for public companies. This Alert addresses the SEC’s recent lawsuit against and settlement with Elon Musk and Tesla.

Ten years ago, the SEC issued guidance “clarifying that websites can serve as an effective means for disseminating information to investors if they’ve been made aware that’s where to look for it.” SEC Says Social Media OK for Company Announcements if Investors Are Alerted, SEC Press Release No. 2013-51 (April 2, 2013). In 2013, the SEC updated its guidance clarifying that companies can use social media outlets like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Regulation FD) so long as investors have been alerted about which social media will be used to disseminate such information.” Id.

The SEC requires that disclosures made via social media (or otherwise) be accurate and not false or misleading. In 2015, the SEC issued an Updated Investor Alert titled “Social Media and Investing – Stock Rumors.” See In the 2015 Investor Alert, the SEC recognized that:

Social media and the Internet in general have become important tools for investors. Investors may use social media to research particular stocks, look up background information on a broker-dealer or investment adviser, find guidance on investing strategies, receive up-to-date news, and discuss the markets with others.

While social media can provide many benefits for investors, it also presents opportunities for fraudsters. Through social media, fraudsters can spread false or misleading information about a stock to large numbers of people with minimum effort and at a relatively low cost.

. . . .

One way fraudsters may exploit social media is to engage in a market manipulation, such as spreading false and misleading information about a company to affect the stock’s share price.


Tesla (NASDAQ:TSLA) has long advised investors that it would disseminate company information via Twitter, and indicated that Twitter was a recognized channel of distribution. Nevertheless, on Tuesday, August 7, 2018 at 12:48 PM, Tesla Chairman and CEO Elon Musk tweeted:

“Am considering taking Tesla private at $420. Funding secured.” 

Tesla’s stock, which had closed at $341.99 on August 6th, surged after Mr. Musk’s tweet, trading higher than $370 on August 7th before trading was halted for more than an hour. In the hours and days that followed, the stock continued to trade higher and higher.  

Immediately following Mr. Musk’s August 7th tweet, the SEC turned its attention to Mr. Musk and Tesla. The Commission conducted an investigation, including interviewing Mr. Musk and others, and reviewing the company’s records and disclosures. The SEC found that Mr. Musk’s claim of having secured funding sufficient to buyout was false and misleading and that neither Mr. Musk nor Tesla properly notified the SEC of material company events. Then, On September 27, 2018, the SEC sued Mr. Musk and Tesla in federal court, charging Mr. Musk with fraud for misleading investors over his “funding secured” tweet regarding a $420-per-share buyout.  

Not surprisingly, the SEC’s lawsuit caused a decline in the value of Tesla’s shares, which dropped almost 14 percent on Friday, September 28th and closed below $265-per-share. The following day, on September 29, 2018, Mr. Musk and Tesla settled the lawsuit. Mr. Musk agreed to pay a $20 million fine and step down from his position as Tesla’s Chairman for three years. The terms of the settlement permit Mr. Musk to remain CEO. The Company was not charged with fraud, but has also settled with the SEC and will pay a $20 million penalty. Mr. Musk will also purchase $20 million worth of Tesla stock to offset the cost to the Company.

The New York Times reports that “[t]he terms of the settlement are slightly tougher than those . . . Mr. Musk had rejected on Thursday, which called for a two-year bar on serving as chairman and a $10 million fine.” To put the matter into perspective, however, it should be noted that the $20 million fine is a mere 0.1% of Mr. Musk’s estimated personal net worth ($19.8 billion).

In addition, the SEC has required Tesla to employ two independent directors to oversee Mr. Musk’s communications with investors and to install a permanent committee of independent directors to review and analyze company disclosures and conflicts as a result of Mr. Musk’s social media violations. According to the SEC:

This matter reaffirms an important principle embodied in our disclosure-based federal securities laws. Specifically, when companies and corporate insiders make statements, they must act responsibly, including endeavoring to ensure the statements are not false or misleading and do not omit information a reasonable investor would consider important in making an investment decision. 

SEC Statement Regarding Agreed Settlements With Elon Musk and Tesla, (Sept. 29, 2019).

Social media obviously provides a platform for companies to disseminate information quickly and universally. However, the recent settlements with Elon Musk and Tesla should serve as a powerful reminder that disclosures via social media must comply with SEC rules. The SEC acted very quickly in this instance perhaps as a precedent for others who may doubt the perils of inaccurate social media announcements that affect the securities markets.

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