Social Media: Personal but also Public
The use of social media in every day life is now becoming the norm. The President is well known for using Twitter. Celebrities have adopted it to make announcements, pick fights, or even take political stands on current events. Social media provides the ability to reach a large number of people with short and sometimes loaded comments.
The law and business practices tend to be slow to adapt to new technology. An example of this is music streaming. The method of music distribution and how royalties are paid is no longer the same as with albums, CDs, and cassettes. It wasn’t until this year that the 2018 Music Modernization Act closed loopholes in digital royalty laws. Keep in mind that Pandora was founded in 2000 and Spotify, 2006. Social media is also experiencing lags of legal clarity.
Legal ramifications of social media posts can be costly. Elon Musk, CEO, of SpaceX and Tesla, posted a tweet that resulted in a $20 million fine and his removal from the Tesla board. On August 7th, while stock markets were still open, Mr. Musk tweeted that he was considering taking Tesla private at $420 a share and that he had secured funding.
Does a tweet constitute misleading investors?
Previously, Musk was already the target of a complaint filed by the National Labor Relations Board (NLRB). He was accused of violating labor laws when he tweeted on May 20 that he “threatened to strip employees of their stock options should they vote for the union.” Action from this complaint is still pending.
Now, with this latest tweet, the Tesla board was unaware of his statement and had not given their approval for its release. The result of this ‘simple remark’, Tesla stock rose 6%. The timing of the tweet and the stock price increase brought about an investigation by the Stock Exchange Commission (SEC). They were interested in whether the tweet amounted to misleading investors and violating federal securities laws.
According to the SEC press release, his tweet falsely announced the price and it was a substantial increase from its current price. He had stated that the funding for the transaction had been secured, and only a shareholder vote remained. The SEC alleged that Musk knew that the potential transaction was uncertain and subject to numerous contingencies. He had not spoken to any potential financing partners, and the transaction lacked an adequate basis in fact and that his misleading tweet caused a jump in price and led to significant market disruption.
In late September, Musk accepted an agreement to step down as chairman of Tesla and pay a $20 million fine. The settlement, which still requires court approval, will allow Musk to stay as CEO but must leave his role as chairman of the board within 45 days. He also cannot seek re-election for three years. All of this was caused by the simple message of a 61 character tweet.
Protecting your business and mitigating errors in judgment
To protect themselves, most companies have social media guidelines in place reminding their employees that there is no clear line between your work life and your personal life.
Organizations often obtain legal representation to preserve, protect and defend its clients’ business interests and individual rights, reputations, and livelihoods. Providing counsel concerning investigative interviews, subpoenas, search warrants, civil investigative demands, and related allegations of impropriety. A law firm like DBL can provide representation that includes managing matters from the investigation stage through the grand jury process, trial, and if necessary, appeal and collateral proceedings.
Posted in: White Collar Crime