1/ Let's play lawyer & consider whether Musk's tweet today violates the Consent Decree he signed last April.
Here's the tweet. Note the time:
Here's the tweet. Note the time:
2/ Now, here's the market reaction. Start at, oh, right around 11:11 a.m.:
3/ Here's the start of the Consent Decree.
4/ US District Court Judge Alison J. Nathan, satisfied Mr. Musk had properly pulled on his reasonable pants, entered the Consent Decree in this April 26, 2019 order:
5/ And, our favorite CEO added his signature. A nice touch by the Court to assure the CEO was truly on board.
6/ Okay, there are items listed after the opening paragraph, but let's focus just on that. It requires Musk "to comply with all mandatory procedures implemented by Tesla, Inc. (the "Company") regarding the oversight of communications relating to the Company"...
7/ "...made in any format, including, but not limited to, posts on social media (e.g., Twitter)..."
Well, here, there's just no getting around it. This is a communication by Musk on Twitter.
So, does it comply with Tesla's "mandatory procedures"? Let's take a look.
Well, here, there's just no getting around it. This is a communication by Musk on Twitter.
So, does it comply with Tesla's "mandatory procedures"? Let's take a look.
8/ Fortunately, the mandatory procedures were an exhibit in the contempt proceeding. Here's how they begin:
9/ Was Musk's tweet a communication that contained, or could reasonably have been thought to contain, "information material to Tesla or its stockholders"?
It certainly appears to have been material. Take a look back at that screen shot of the TSLA price activity.
It certainly appears to have been material. Take a look back at that screen shot of the TSLA price activity.
10/ Now, as I said, there is a laundry list of items listed in the mandatory procedures. We don't need to go that far. We can stop at the fact that this tweet had information (Musk's opinion that the Tesla share price is too high).
11/ But, if the Board of Directors fails to remove Musk as CEO, and if the SEC then moves for another contempt order seeking that relief, I would expect Musk's lawyers to argue that what he did does not precisely offend any of the listed items:
12/ One could argue that point either way. Is such an opinion an "event regarding the company's securities"? Hmmm. However, this time, I don't think Musk's attorneys can get by the language in the introductory paragraph.
13/ So, Musk has now created an event that all but compels the Board to remove him as CEO. Will it? Unlikely. Will the SEC take action? TBD. This is shockingly egregious.
14/ Add to all this weirdness the fact that Musk is now the D&O insurer for the Directors. Just imagine the fun that will erupt if & when a shareholder sues the Directors for failing to supervise the CEO. Because, folks, this is hardly the first violation of that Consent Decree.
15/ I am reminded that Tesla may have amended its mandatory procedures. That's an excellent point. We need to see the mandatory procedures approved by the Board & in effect this morning. cc: @drinkthecoffee2
