Social media continues to grow as the powerhouse of information flow in modern times, and while it often seems no one is policing the content and fact and fiction are often indistinguishable, the SEC is policing the statements of at least one social media influencer, Elon Musk. After Musk tweeted in August of 2018 that he had secured financing to take Tesla private at $420 per share, the SEC filed a complaint alleging that his tweets comprised a series of “false and misleading statements” to his millions of followers. The resulting court-approved settlement, reached in October, stipulated that Musk had to seek pre-approval of any written communications – including social media posts – that contained or reasonably could contain information material to Tesla or its shareholders. In connection with the settlement, Tesla and Musk were each required to pay $20 million to the SEC.
Just days ago, Musk was back under scrutiny, having tweeted, “Tesla made 0 cars in 2011, but will make around 500k in 2019” without pre-approval from his counsel and for that, the SEC filed an enforcement motion seeking to have Musk held in contempt. The SEC argued that Musk was cognizant of but had shown deliberate indifference to Tesla’s communications policy; they cited Musk’s interview with 60 minutes, wherein he announced his lack of respect for the SEC, as evidence that he had never intended to comply with the terms of settlement.
In a coincidental and timely foreshadow, the National Association of Minority and Women Owned Law Firms’ Financial Services Practice Area Committee, of which Kang Haggerty member Jackie Fetbroyt is chair, presented its CLE on February 18th at NAMWOLF’s Driving Diversity and Leadership Conference in New Orleans entitled, “How to Enrage the SEC Whilst Tweeting Stoned (Allegedly): Social Media and the SEC.”
In the program, the panel (comprised of Jennifer Novoselsky of Reyes Kurson, Julie Moran of Orlans P.C., Gopal Burgher of Burgher Gray, LLP, Sharonda Mills of Wyndham Destinations, and Kris Keys of Exelon Corporation) identified the situations in which the use of social media may draw the watchful eye of the SEC, including a discussion on the primary statutes and regulations under which the SEC has considered social media and pursued actions –Regulation FD, the “Testimonial Rule” under the Investment Advisers Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Then the participants examined the limited guidance provided by the SEC concerning social media usage, which is most extensive in the context of Regulation FD and the flurry of actions against investment advisers for alleged violations of the Testimonal Rule. The intersection of social media and the Exchange Act’s broad antifraud provision – Section 10(b) and Rule 10b-5 – including the purpose of the provisions, the elements of the claim, and the SEC’s wide-ranging investigatory and enforcement authority, was discussed, as well as the application of these principles to social media, using the colorful Tesla complaint and subsequent settlement as an example and starting point for hypotheticals to illustrate key principles and elements of these claims, such as materiality and scienter. In a lively discussion, the panel and NAMWOLF attendees made practical recommendations for companies and their in-house and outside attorney to use to create or update the company’s social media policy.