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Musk Twitter Poll Sidesteps Legal Risks of ‘Funding Secured’ (1)

Nov. 8, 2021, 9:05 PM

It was classic Elon Musk: Take advantage of the weekend --when markets are closed -- and create an attention-grabbing Twitter poll about whether the CEO should sell 10% of his formidable stake in Tesla Inc.

But this time, Musk is unlikely to incur the wrath of regulators with the U.S. Securities and Exchange Commission, in contrast to his infamous “funding secured” tweet in August 2018 about taking the electric-car maker private.

Musk has been telegraphing a potential stock sale because of taxes for months. Even though Tesla shares as dropped about 4.9% in Monday trading, Musk’s tweets about his personal holdings probably aren’t a violation, a securities-law expert said.

“He’s acting in his capacity as a shareholder. He could use a Ouija board to decide when to buy and sell shares,” said Jonathan Macey, a professor at Yale Law School. “It’s kind of sad that every time this guy sends out a tweet, people wonder if he’s in trouble with the SEC.”

The terms of a settlement agreement with the SEC require that Musk get approval from Tesla’s designated disclosure or securities counsel -- cheekily known as his Twitter Sitter -- before communicating material information to investors. The agreement was amended in April 2019, after Musk clearly ignored it, to require pre-approval for certain categories of posts, including tweets about “events regarding the Company’s securities (including Musk’s acquisition or disposition of the Company’s securities).”

But a Twitter poll is just that: a nonbinding theatrical exercise. There’s been no regulatory filing indicating an actual sale. It’s also possible that Musk actually pre-cleared his weekend tweets with Tesla’s designated lawyer. If he didn’t, it’s not clear that the SEC would do anything.

Who the Twitter Sitter is has always been a bit of a guessing game, as Tesla’s legal department has seen enormous turnover. The last named general counsel was Jonathan Chang, who left the company in December 2019. Acting General Counsel Al Prescott departed in April.

A Matthew Yun Huh was listed as Tesla’s designated disclosure counsel in May 2020 correspondence when the SEC inquired about a Musk tweet that said “Tesla stock price is too high imo.” The SEC asked the automaker whether the May 1 tweet had been reviewed or pre-approved; Tesla responded that it had not, and that the company considered it to be an amorphous personal opinion. Matthew Yun Huh no longer works at Tesla, according to a person familiar with the matter.

Tesla didn’t respond to a request for comment Monday. The SEC also didn’t respond to a request for comment.

(Updates penultimate paragraph to note that Matthew Yun Huh left the company)

To contact the reporters on this story:
Dana Hull in San Francisco at dhull12@bloomberg.net;
Ben Bain in Washington at bbain2@bloomberg.net

To contact the editors responsible for this story:
Chester Dawson at cdawson54@bloomberg.net

Kevin Miller, Tony Robinson

© 2021 Bloomberg L.P. All rights reserved. Used with permission.

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