During a trial over a fraud claim tied to Tesla’s stock price and a series of his tweets, the mogul tried to deflect blame by saying the platform’s 280-character limit created confusion — but experts say that argument likely won’t fly.
The mogul is accused of securities fraud, which under SEC rule 10b-5 is “to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading … in connection with the purchase or sale of any security.” In non-regulatory speak, it’s knowingly saying something false, or keeping important information secret, which could affect an investor’s decision.
And Cox emphasizes that an investor wouldn’t even need to be aware of the tweet that moved the market to be a member of the class. “It’s enough that it happened,” he says. “Fraud-on-the-market is the theory that guides all securities fraud actions. Information that is material gets rapidly reflected in that company’s stock price, therefore it impacts all individuals who buy that stock during the time when it is affected by the misleading information.
Adds Whitehead, whose specialties include securities law, “The fact that Twitter only permits 280 characters is not a defense. The bottom-line focus is making sure that what you disclose is materially accurate. Period. Full stop. If the mechanism you’re using to distribute the information doesn’t permit you do to it, find another mechanism.”
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