Last summer, a group of Tesla shareholders brought a lawsuit against the company after its CEO, Elon Musk, broadcast Tesla’s 2019 electric car and solar panel production goals in a series of tweets without first filing with the SEC. The shareholders sought to stop Musk from using his personal Twitter account to distribute sensitive information about Tesla, which tends to send the company’s stock price into wild swings.
But that quest is going nowhere for now. On Tuesday, a Delaware judge denied a request by the plaintiffs’ attorneys to pursue the lawsuit. Joseph Slights III, a vice chancellor on the Delaware Court of Chancery, ruled that shareholder attorneys had not demonstrated “a sufficient reason” for him to allow the lawsuit to proceed, the Associated Press first reported.
Slights had put the case on hold since it was filed last year due to a contempt motion against Musk by the SEC over some of his 2019 tweets and a pending federal lawsuit about Tesla’s securities fraud.
These parallel disputes can all be traced back to an even earlier Twitter saga. In August 2018, Musk falsely claimed that he had secured fundings to take Tesla private at $420 per share, a huge premium over Tesla’s market price at the time. As it turned out later, Musk hadn’t secured any funding for a private takeover; nor had he discussed the plan with Tesla’s board, which he chaired.
The incident subsequently led to multiple federal lawsuits, including one with the SEC, and ended up costing Musk $40 million in fine and the role as Tesla’s board chairman.
In the SEC motion, the securities regulator took issue with a set of Musk tweets in February 2019, in which he shared Tesla’s vehicle production goals. The SEC alleged that those tweets had violated the settlement from the 2018 lawsuit requiring Tesla’s board to review Musk’s business-related tweets before they are posted. The contempt motion was resolved in April 2019 with an agreement that Musk must get a company lawyer’s approval before issuing any written communications regarding Tesla’s finances.
Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week. Deliveries for year still estimated to be about 400k.
— Elon Musk (@elonmusk) February 20, 2019
In a court filing earlier this month, Tesla shareholders argued that the lawsuit should proceed because Musk’s erratic tweeting behavior poses an imminent threat to Tesla. One of the particularly troubling tweets, they said, was a May 1 post in which Musk said he thought “Tesla’s stock price is too high.” (Tesla shares dived 10 percent immediately after the tweet.)
Tesla stock price is too high imo
— Elon Musk (@elonmusk) May 1, 2020
“No rational Tesla lawyer or director could have approved this tweet,” the plaintiffs’ attorneys wrote in the filing. “Musk clearly is unwilling to comply with the SEC settlements, and the board is equally unwilling or unable to require him to do so and constrain his tweeting.”
In response, Tesla’s attorney argued that the May 1 tweet’s impact on Tesla’s stock price wasn’t significant enough to constitute fraud or market intervention.
“The only harm that the plaintiffs allege is a drop in the market price that existed for less than one full business day,” said William Chandler III, who represents Tesla directors, per AP.
Slights, the judge, said in Tuesday’s ruling that Musk’s 2019 tweets about solar panel production weren’t “terribly problematic” and that May 1 tweet about Tesla stock price appeared only “troublesome on its face.”
Spooling up production line rapidly. Hoping to manufacture ~1000 solar roofs/week by end of this year.
— Elon Musk (@elonmusk) July 30, 2019
However, the judge warned that he could revisit his decision if Musk’s social media activities result in “likely” harm to shareholders. “The decision will be clearer if more of a pattern emerges, especially an unchecked pattern…. At this point, though, what’s done is done,” he said.