Jay A. Dubow, a partner with Pepper Hamilton, a member of the firm’s White Collar Litigation and Investigations Practice Group and a co-chair of the Securities and Financial Services Enforcement Group, was quoted in the December 27, 2018 Los Angeles Times article, "Twitter Restrictions on Elon Musk Are Set to Take Hold. But Is Anyone at Tesla Willing to Reel Him In?"
Jay Dubow, a lawyer at Pepper Hamilton who served with the SEC's enforcement division early in his career, offers one possibility: The settlement, he said, is weak.
"I thought it was weak from the outset," he said. Although Musk lost his chairman title, he remains chief executive and still sits on the board, which will soon gain two new independent directors, also part of the SEC settlement. He continues to own about 20% of Tesla shares.
Dubow pointed out, along with many other securities law experts, that the funding-secured tweet presents an obvious example of an untrue statement that had material consequences for shareholders, a clear violation of SEC rules. But most cases that involve "material" information are not so clear-cut, and that could give Musk some leeway on his public statements.
Supreme Court decisions and guidance from the Financial Accounting Standards Board and the SEC boil down to two main thresholds for determining when information is material to shareholders, Dubow said. First, the information must be something a reasonable shareholder or potential shareholder would want to know when making decisions to buy or sell. Second, the material must "alter the total mix of information" available to investors about the company in question.
The funding-secured tweet "very clearly" met both thresholds, Dubow said. But what about shifting promises about how many Model 3s Tesla will produce and sell? Or Musk's Nov. 19 tweet promising to double Supercharger capacity by the end of 2019?
"Materiality is often a hindsight test," Dubow said. "Sometimes you don't know if stockholders are going to react to it."
That's what Musk was getting at in the "60 Minutes" interview, when he answered a question about how the company could determine whether a tweet would move the stock price if it wasn't reviewing all his tweets. "I guess we might make some mistakes," he said. "Who knows? Nobody's perfect."