Elon Musk recently tweeted that he had plans to take Tesla private and investor backing to do so. Tesla stock prices responded by spiking around 10%. This all looks great if you were lucky enough to hold Tesla stock and/or heard the news in time to make a trade. But was it legal?
The SEC enacted Regulation FD (Fair Disclosure) to specifically address this type of problem. Any issuer of stock, whether public or not, must make a simultaneous public disclosure if it discloses material non-public information. Generally, material means anything that would cause a shareholder to change his or her position. The simultaneous public disclosure should be through a current report (form 8-K) filed with the SEC, unless the company has reasonable certainty that the disclosure will provide “broad, non-exclusionary distribution of the information to the public.” Failure to follow SEC regulations can result in steep fines, or worse.
A company would be hard-pressed to prove that its Twitter feed will reach the public on a non-exclusionary (everyone gets the same chance to hear it) basis. After all, how many potential shareholders don’t have Twitter? The standard here seems to be quite high. The company must prove that it always uses its Twitter or other social media accounts to inform investors and that the public knows to follow these accounts for disseminated information.
While every company is happy when it has great news, the investors might react differently. What is exciting news to your company could signal to an investor that it is time to sell. If your company has any outside investments, please contact your attorney before you post the next big news item on Twitter.
