Tesla Motors Inc (NASDAQ:TSLA) Chief Executive Elon Musk’s tweets about a “major new Tesla product line” from earlier in the week have raised quite a few questions about how and when publicly-listed companies can use social media to divulge market-sensitive information. Elon Musk’s tweets created quite a flutter on the Street, boosting Tesla’s market capitalization by close to $1.3 billion.
Seeing the jump in Tesla Motors Inc (NASDAQ:TSLA)’s shares, maybe, even Musk got anxious, which would explain why he later posted a couple of defensive-sounding tweets, reminding sceptics that he doesn’t stand to gain from the spike in share prices! If that was not enough, a Tesla spokesman released a statement saying the company “carefully” follows all SEC requirements. Is Elon Musk worried that his flamboyance might have crossed the line this once?
Major new Tesla product line — not a car — will be unveiled at our Hawthorne Design Studio on Thurs 8pm, April 30
— Elon Musk (@elonmusk) March 30, 2015
SEC’s Regulation Fair Disclosure
The Regulation Fair Disclosure prohibits selective disclosure of corporate news. The SEC updated the rule in 2013 to include social media. Reg FD, as it is commonly known, now states that companies may use social media to make disclosures and announcements, but only if two specific conditions are met. First, a company cannot be selective in disclosing information. And secondly, key announcements can be made provided “investors have been alerted about which social media will be used to disseminate such information.”
Did Elon Musk’s Tesla Motors Inc (NASDAQ:TSLA) Tweets Flout These Rules?
The SEC has so far been silent on Musk’s latest tweets. But that does not rule out any future action. Among the things that SEC could consider are whether tweets to his 1.87 million followers on Twitter could count as legal disclosure, and whether Tesla Motors Inc (NASDAQ:TSLA) as a company had taken any other steps to ensure that the public was notified of any information that could affect the stock’s price.
A tweet has a very limited audience. What about the people who were not following Elon Musk on Twitter? Were they not entitled to the disclosure?
Elon Musk has a habit of announcing major Tesla news on Twitter. He did it last year with his tweet about the “D,” and he will do it again in the future. It’s time the SEC takes note. Elon Musk cannot be selective in disclosing Tesla Motors Inc (NASDAQ:TSLA) news. Everyone has a right to that information.