Elon Musk's $40 million tweet comes back to bite him again

An SEC filing reveals Tesla was hit with another subpoena in November 2021. The federal scrutiny over Musk's tweets began in 2018. That missive ended up costing $40 million.
Brad Bergan
Elon Musk (left), and the Tesla logo (right).1, 2

In August 2018, Tesla CEO Elon Musk posted a very expensive tweet. In announcing he was considering taking the electric automaker private, observers saw it as a way to annoy short-sellers, but the announcement still sent investors scrambling, caused regulators to fine Tesla $20 million, and created a class-action lawsuit that looks like it will head to trial. The 2018 tweet set off a chain of events that continued on Monday, when new information about federal oversight was made public.

In a Tesla SEC filing, the company writes that the U.S. Securities and Exchange Commission issued a subpoena on November 16, 2021, because of another tweet by Musk, wherein he discusses selling 10 percent of his stake in the company.

The tweet landed partly as an apparent reaction to a since-jettisoned proposal from the administration of President Joe Biden to tax financial gains made on the stock market as income. (Currently, any gains in stock aren't counted as income and are not taxed as income.)

But federal regulators, who had been watching the CEO's comments on Twitter about his company's finances for years — because of that 2018 tweet and the settlements that stemmed from it — apparently had cause to investigate.

On November 16, 2021, the SEC issued a subpoena to Tesla seeking information on its governance processes around compliance with a previous SEC settlement.

On November 16, 2021, the SEC issued a subpoena to Tesla seeking information on its governance processes around compliance with a previous SEC settlement, because of the Tweet you see above.

Elon Musk's very contentious history with the SEC

The trouble really began with that August 2018 tweet by Musk. The tech billionaire claimed he could take Tesla private with a stock value of $420 per share. Tesla has remained a publicly traded company since 2010. But in the tweet, Musk said he had "funding secured" to buy the shares from everyone who didn't want to stay committed to the firm.

When he shared this information on Twitter, Tesla's stock soared, and then returned to normal levels. The SEC then intervened with an investigation, arguing in 2018 that Musk "had never discussed a going-private transaction at $420 per share with any potential funding source, had done nothing to investigate whether it would be possible for all current investors to remain with Tesla as a private company via a 'special purpose fund,' and had not confirmed support of Tesla's investors for a potential going-private transaction."

This tweet cost Tesla $20 million, according to company.

For this tweet, Tesla paid a civil penalty of $20 million and Musk another $20 million penalty to the SEC. Tesla also appointed an independent director as the chair of its board of directors, appointed two additional independent directors to its board of directors, and made further enhancements to its disclosure controls and other corporate governance-related matters.

Tesla reached a settlement with the SEC in 2018, stipulating that controls over Musk's official communications. This required Tesla's lawyer to pre-approve tweets from Musk about the firm's delivery numbers, sales, financial health, or other potentially sensitive topics. But, as you might guess, Musk and the SEC would continue to have problems. In February 2019, the SEC tried to have a federal judge place Musk in contempt for tweeting inaccurate information. Specifically, Musk said Tesla would manufacture "around" 500,000 Model 3s in 2019, which contrasted sharply with the firm's official goals of delivering 360,000 to 400,000 that year.

Shareholders say Musk's tweets cost them billions of dollars

Musk's retort was an allegation that the SEC was just trying to execute an "unconstitutional power grab", while on the other side, the agency claimed the tech billionaire had fallen into "blatant violation" of the earlier settlement. It took a federal judge to reach a conclusion. A more recent subpoena came on the heels of Musk tweeting a poll where he asked his roughly 73 million followers whether selling 10 percent of his Tesla shares to pay taxes was a good idea. Predictably, the all-electric automaker's stocks dropped by 16 percent through the next two business days.

Truth or dare with a federal judge — With the newly released subpoena, it's clear the SEC isn't finished with Musk's infamous storm of industry-shifting tweets from the last few years. But how the current subpoena will turn out remains a mystery. Last week, Musk's lawyers claimed in a court filing that the August 2018 tweet about going private with Tesla was "entirely truthful."
But shareholders involved in a class-action lawsuit contest that Musk's online behavior has cost billions of dollars in losses. It may take a final ruling from a judge on May 31 to prove whether the tech billionaire's tweet was true, or not.

Does Musk regret that $420 tweet from August 2018, the one that ended up costing him at Tesla a combined $40 million? It's possible he may regret it in the future, especially as it created a scrutiny ripple effect that continues to this day.

In the fall of 2021, after he began to feel the heat of the SEC, the iconoclastic CEO remained as defiant as ever. When asked about the fine, Musk replied "Worth it," on — where else? — Twitter.

On Monday afternoon, as headlines about subpoena multiplied, Musk was apparently in a good mood, tweeting, "🎶Always look on the bright side of life🎶"

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