Elon Musk, Tesla board sued over tweet violation

Elon Musk and Tesla’s board of directors have been sued by investor Chase Gharrity, who accuses the electric car company’s CEO and board of “Tweeting about specified information without the pre-approval of a mandated ‘Securities Counsel’ and Tesla’s Disclosure Committee.” Gharrity says Musk has proceeded to break the terms of the settlement announced in the 2018 SEC case against him.

Tesla’s continued tweeting, according to the lawsuit, may “have severe ramifications on the company’s ability to secure financing.” Tesla’s “Board has failed to take necessary action to ensure that Tesla has an independent General Counsel and to ensure that Musk does not improperly interfere with the General Counsel’s job of representing the best interests of Tesla, thus breaching its duty of loyalty.”

On Friday, the Court of Chancery of the State of Delaware unsealed a 105-page lawsuit, with certain information intentionally left out. It cites several instances where Gharrity says Musk violated the terms of the 2018 settlement with the SEC, in which the Tesla CEO was charged with “securities fraud for misleading tweets.”

One example is Musk’s comment on May 1st, 2020, in which he claimed that “Tesla stock is too high IMO.” This, according to the complaint, is an indication of “continuing breaches of fiduciary duty.”

Last year, the same tweet was brought to the attention of a Delaware court, where Judge Joseph Slights said that although the tweet was “troublesome on its face,” it was a valid observation given Tesla’s legendary stock rise. Last year, Tesla stock exploded to over 700 percent gains.

In the end, the lawsuit was dismissed.

Musk’s SEC case was settled on September 29, 2018, with the CEO agreeing to resign as Chairman of Tesla, appoint two new independent directors to the board, establish a new committee of independent directors to oversee Musk’s communications, and pay a combined fine of $40 million – $20 million from Musk and $20 million from Tesla. The funds were used to solve issues caused to “harmed investors under a court-approved process.”

On March 12, 2021, the full complaint was unsealed, and it is available here, courtesy of Bloomberg Law.

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