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You could call Elon Musk indifferent.
It’s a demand from at least one investor in Tesla, Musk’s electric car prodigy, three years after a SEC settlement that cost him his chair and required him to get corporate approval for his Twitter posts. This is similar to what the agency did just a few months after the deal.
Musk’s tweets seem as lighthearted as ever, and the directors tasked with spying on them lack the clout needed to rein in the man who is both the face of the Palo Alto, Calif. Company and its largest shareholder, according to the lawsuit. … filed by shareholder Chase Garrity earlier this year in the influential Delaware Clerical Court.
“Since the board has done nothing to enforce the decisions of the Securities and Exchange Commission, Musk’s illegal behavior continues unabated and Musk is openly expressing concern about the violation of the judgment,” Garrity argued in his complaint calling for Musk and 11 unspecified losses. other current and former Tesla board members.
Meanwhile, a separate federal class action lawsuit in San Francisco focuses on damages from tweets underlying the SEC’s complaints against Musk and Tesla.
In August 2018, Musk announced on Twitter a proposal to privatize the company at $ 420 a share, which was a significant premium to its share price at the time, and this happened as short sellers bet the automaker would not meet its targets. for its cheaper Model 3.
Although Musk said the proposal had been secured with funding that would have cost $ 88 billion, ultimately citing talks with the Saudi Arabian State Investment Fund, the SEC objected.
The agency argued that funding was far from guaranteed, with obstacles including Saudi Arabia’s demand for the company to build a manufacturing facility in the Middle East.
The regulator said Musk’s message harmed stock buyers who had hoped for windfall profits based on his claims but instead saw Tesla’s value decline as questions swirled – some focused on the price itself, not least because 420 is an American idiom for using marijuana.
In response, the agency initially tried to bar Musk from serving as either a company officer or a member of the board of directors, but relented after Wall Street warned that such action could seriously undermine shareholder confidence in the company. Musk and Tesla agreed to pay a $ 20 million fine each.
If regulators consider the case closed at this stage, they will later accuse Musk of not repenting, as Garrity’s lawsuit alleges.
Less than a year after the settlement, the agency returned to the US District Court in New York, asking a federal judge to convict Musk for failing to comply with his terms.
In February 2019, a tweet regarding the automaker’s annual production targets was not approved in advance, the agency said in court filings and combined with its comments in a December 60 Minutes interview that Tesla could “make some mistakes” in its regulatory compliance process. requirements. this indicated that he did not take the agreement seriously, the agency said.
Musk, who derisively called the regulator the “Shortseller Enrichment Commission,” claiming its actions benefit investors who were betting Tesla’s stock price would fall, also told 60 Minutes to Leslie Stahl that he had no respect for the agency.
An excerpt from this interview was included in the SEC minutes, which stated that Musk “did not make diligent or good faith efforts to comply with the provisions of the final court decision.”
The follow-up decision was made a few months later, when US District Judge Alison Nathan made the settlement much more specific.
Among the new provisions was a requirement that Musk obtain prior approval from an experienced securities lawyer for statements on any topic in a detailed list of Tesla’s business data and projections.
However, Garrity’s suit claims that this has not stopped the market-stirring tweets. For example, in May 2020, Musk said that the company’s stock price, which by then had reached $ 761 per share, was too high.
Such a statement is almost unheard of for a CEO of a public company, and Tesla’s price plummeted in response, wiping out about $ 14 billion in market value just as the Covid-19 pandemic has forced much of the US to lock in and grab a sledgehammer for a previously dynamic economy.
The directors should have prevented this, Garrity argued in his suit.
“The board was aware of and approved the decision and amended the Securities and Exchange Commission decision, and had factual information about the steps Tesla had to take to comply with the decisions,” Garrity said in the lawsuit. “The board of directors has not done this on several occasions.”
The SEC has had concerns of its own since the amendments were made to the Tesla agreement, the Wall Street Journal reported in early June, citing previously undisclosed correspondence between the agency and the automaker.
The agency refused to expedite the preparation of correspondence required by Lawdragon under the Freedom of Information Act and has 30 days to process the request. Nathan last month approved the SEC’s request to appoint Rust Consulting to oversee the allocation of a $ 40 million in fines to affected investors.
Tesla did not respond to a message asking for comment.
Garrity’s suit is a derivative injury lawsuit, a maneuver that typically requires the plaintiff to first demand that Tesla itself go to court, although he argues that doing so would be pointless in this case due to Musk’s oversight.
The investor is represented by Blake A. Bennett of Cooch & Taylor in Wilmington. Francis A. Bottini Jr., Albert I. Chang and Yuri A. Kolesnikov of Bottini & Bottini in La Jolla, California are attorneys.
In addition, a federal class action lawsuit in San Francisco consolidating claims from nine investors linked to Musk’s 2018 tweets has survived Tesla’s rejection petition last year and is moving forward with Glen Littleton, an investor who claims to have lost $ 3.5 million. dollars as the lead plaintiff. …
Attorneys Nicholas Porritt and Adam Upton spoke on behalf of Levi & Korsinsky’s New York-based general counsel at the latest high-profile conference on the case.
US District Judge Edward M. Chen at the end of May asked lawyers for additional data on the use of shareholder lists and brokerage firms to identify potential group members. The attorneys told him that this method is usually around 70 percent of the proposed grade and then approved the agreed plan. by both parties to notify the participants of the legal action.
Although Tesla did not file a response to the lawsuit, the automaker’s rejection petition alleged that Musk “considered” transferring private property to Tesla and truthfully disclosed what he “hoped” and “imagined” what it might look like “in mid-2018. of the year.
The CEO’s statements “were in line with what he told the board privately a few days earlier,” and “every action he took before and after his tweet reflected his good faith commitment to this opportunity,” the message said.
In addition, attorneys argued in a petition that “the process undertaken by Tesla (which made no announcements) and the directors (who are scarcely mentioned) demonstrate their good faith, not fraud.”