Tesla founder and CEO Elon Musk took to Twitter last week to share the following news:
That tweet sent Tesla’s share price up, ultimately adding about $1 billion to the firm’s market capitalization. That is great news for Tesla and fans of the company’s cars, but it may cause some headaches for Tesla’s compliance department because Musk’s tweet might have violated guidance from the Securities and Exchange Commission on the use of social media.
Let’s review the problems Musk’s tweet might present and then look at some of the easy ways this compliance risk could have been avoided.
Guidance from the SEC states:
“Although every case must be evaluated on its own facts, disclosure of material, nonpublic information on the personal social media site of an individual corporate officer — without advance notice to investors that the site may be used for this purpose — is unlikely to qualify as an acceptable method of disclosure under the securities laws. Personal social media sites of individuals employed by a public company would not ordinarily be assumed to be channels through which the company would disclose material corporate information.”
There are two reasons Musk’s tweet may land Tesla in cross-hairs of the SEC:
- A Tweet touting an upcoming announcement — as opposed to the announcement itself — may not at first blush seem like “material, nonpublic information.” However, the market decided otherwise.
- The information Musk tweeted was not simultaneously made available via any of Tesla’s other investor information channels. Perhaps Tesla has previously declared that Musk’s Twitter feed is indeed a channel though which it disseminates investor information, but a quick search of Tesla’s corporate site turned up no such declaration. (An email seeking information/comment from Tesla’s North American press office has thus far gone unanswered.)
That such a tweet might land Musk and Tesla in hot water is quite silly; not because the SEC guidelines are misguided or because the information Musk relayed was trivial, but because avoiding compliance concerns in a case like this is so easy.
- If Musk is going to be so free-wheeling with his Twitter feed, Tesla should declare the feed as a channel through which it intends to disseminate investor information.
- If Tesla is planning a press event, then it would have been VERY simple for the company to announce it on their corporate site. The announcement on the corporate site can be very short and simple. It can even be exactly the same wording as the tweet Musk sent. The key is that the announcement on the corporate has to be available at the same time or before Musk sends his tweet.
High-profile executives taking to Twitter can have tremendous upside for companies, but it is duty of compliance professionals to educate those executives about social media rules. Such conversations might not be easy, but consider this: If Musk had sent the same tweet but included a link to the announcement on Tesla’s corporate site, the markets would have reacted the same way and Tesla’s compliance department (and Musk) could have rested easy knowing they had followed SEC guidelines.