Cost of a tweet: What Musk may pay for a controversial Twitter post
FBN’s Charlie Gasparino and former SEC enforcement attorney Elizabeth Nowicki discuss the legal issues facing Tesla over CEO Elon Musk’s tweet.
The SEC could fine Tesla millions, even billions, for Elon Musk’s Aug. 7 tweet he had “secured funding” to take the electric car maker private. But ultimately, private litigation could dwarf the cost of a government fine, according to attorneys familiar with the matter.
In preparation for the mounting litigation, Musk, Tesla and the board of directors, respectively, have hired lawyers from top firms: Paul, Weiss, Rifkind, Wharton & Garrison; Cahill Gordon & Reindel; and Latham & Watkins. Lawyers from these firms are calculating the potential monetary liability for Musk’s controversial tweet and believe it could be more than $1 billion dollars. The cost of retaining these three top law firms could be upwards of $10 million a year.
The most substantial liability Musk may have incurred is paying damages to investors -- in particular, short-sellers. Short selling is a method investors use to bet the price of a stock will go down. Cumulatively, short-sellers lost $1.3 billion on Aug. 7 following Musk’s tweet. Tesla could be on the hook for any of those losses as a result of trading on information in Musk’s tweet.
Five investor lawsuits have been filed thus far, and more are likely to come.
It is still unclear whether Musk has “secured funding,” as his Aug. 7 tweet suggests. If his claim turns out to be false, he will likely be facing charges of fraud as well as civil penalties. The SEC could either send his case to a federal judge or an administrative law judge (ALJ) in the Federal Communications Commission. A federal judge could ban Musk from working as an officer of a public company, put an injunction on him limiting his social media activity or fine him. An ALJ could fine Musk or place an injunction on him but could not ban him from serving in a public company.
Musk is not currently facing criminal charges.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| TSLA | TESLA INC. | 353.84 | +14.20 | +4.18% |
In a blog post Monday clarifying his tweet, Musk said he spoke with the board about taking Tesla private and had “no question … a deal with the Saudi sovereign fund could be closed.” Saudi Arabia’s Public Investment Fund currently holds a nearly 5% stake in Tesla.
From a legal standpoint, feeling confident does not mean funding is secured.
A Tesla spokesman did not immediately respond to a request for comment.