Although their backgrounds are worlds apart, Tesla founder Elon Musk and comedian Roseanne Barr have a few things in common. For one thing, they are both high-profile Twitter enthusiasts. More pertinently, social media use has embroiled Mr. Musk in a firestorm much like the one that resulted in the termination of the reboot of Ms. Barr’s hit ABC show “Roseanne.”
Mr. Musk didn’t post about race or politics, unlike Ms. Barr, who hurled an ethnically based insult at former Obama aide Valerie Jarrett. The 47-year-old Mr. Musk also doesn’t face the wrath of embarrassed network executives. Instead, he faces multiple federal lawsuits arising from tweets about his electric-car company, which went public in June 2010.
“Shooting from the hip is not something that a closely watched publicly traded company can get away with for too long,” said attorney Michael C. Dell’Angelo of Berger Montague law firm in Philadelphia.
Mr. Musk’s foray into the land of litigation and lawyers began in June after the circulation of an internal memo alleging that former employee Martin Tripp had engaged in sabotaging the production of the Tesla car.
“I was dismayed to learn this weekend about a Tesla employee who had conducted quite extensive and damaging sabotage to our operations. This included making direct code changes to the Tesla Manufacturing Operating System under false usernames and exporting large amounts of highly sensitive Tesla data to unknown third parties,” Mr. Musk wrote in a letter to employees that was posted online by CNBC on June 18.
The embattled CEO was so dismayed that he filed Tesla Inc. v Tripp on June 20 in the U.S. District Court of Nevada, opening himself to discovery by the federal courts.
“Tripp breached his fiduciary duty of loyalty to Tesla by engaging in the wrongful conduct alleged herein while still employed by Tesla,” wrote Tesla attorney Joshua A. Sliker alleging that in unlawfully hacking Tesla’s confidential and trade secret information, the 2016 Defend Trade Secrets Act had been violated.
On Twitter, Mr. Musk inquired with Business Insider reporter Linette Lopez about whether Mr. Tripp had been paid for inside information about Tesla.
“Indeed, very simple question. To be specific: @lopezlinette, did you compensate or promise to compensate Martin Tripp for inside information about Tesla? Did he, under that inducement, provide you with exaggerated negative info, which you printed, but turned out to be untrue,” Mr. Musk posted on July 5.
Following Mr. Musk’s tweet to Ms. Lopez, the former Tesla process engineering technician filed not only a countersuit alleging defamation but also a whistleblower tip with the SEC on July 6.
“Getting the truth out has become a nightmare,” Mr. Tripp said in a statement. “While we have had to relocate due to threats and harassment, both online and offline, making it difficult to press on, my family and I have also received a ton of support, which keeps us going. I hope that, in the end, my fight will make it easier for future whistleblowers to come forward without fear of repercussions like those I have endured.”
Tesla, however, denies publishing any statements to retaliate against or discredit Mr. Tripp.
“The tweet speaks for itself, and denies the allegations to the extent that they incorrectly characterize the tweet, misstate its applicability to this case, or take any portions out of context,” wrote Tesla attorney Allison L. Libeu in an answer to Mr. Tripp’s August 21 counterclaim.
While Mr. Musk has requested injunctive relief, Mr. Tripp’s counter suit seeks no less than $1,000,000.00 in damages.
Neither Tesla nor Mr. Musk have responded to PacerMonitor’s request for comment.
Mr. Tripp’s whistleblower tip to the SEC includes allegations that Tesla lowered vehicle specifications that affected safety and systemically reused parts already deemed scrap without regard for safety.
“The federal litigation could influence my client’s SEC whistleblower claim because lawyers involved with the federal case have the jurisdiction to subpoena Tesla employees and others as well as conduct their own investigation and any information gathered through the court can be given to the SEC,” said Stuart Meissner, Mr. Tripp’s whistleblower attorney. “These are unusual circumstances as most SEC whistleblowers don’t have federal civil litigation occurring at the same time as an SEC whistleblower investigation. There will be various depositions and documents turned over involving the allegations and in this case the depositions and documents can be turned over to the SEC so the federal lawsuit can help the SEC investigation in many ways.”
SEC spokesman Christopher Carofine declined to comment.
Legally, a CEO’s statement may carry the same weight in a tweet as if it’s made during a shareholder conference or company communication, according to Ethan Wall, an attorney in Florida who specializes in social media law.
“There’s no recent federal internet or digital law that I am aware of that would make a statement in a tweet be treated any differently than if the statement were made in any other medium,” Mr. Wall told PacerMonitor.
The same holds true for securities law.
William Chamberlain v Tesla Inc was filed on August 10 in California Northern District Court alleging that Mr. Musk was misleading and intentionally destroyed short sellers when he artificially inflated Tesla’s stock with a statement on Twitter that he might take Tesla private in a record $72 billion transaction.
According to Mr. Chamberlain’s complaint, Mr. Musk lied in an August 7 tweet, which stated, “Am considering taking Tesla private at $420,” and “funding secured,” which allegedly drove the price of Tesla shares up 13% during intraday trading before they closed up 11% to $379.57.
“Defendants carried out a plan, scheme and course of conduct which was intended to and did deceive Plaintiff and other investors, as alleged herein; and caused Plaintiff and other investors to purchase or sell Tesla securities at artificially high or low prices, respectively,” stated Chamberlain’s attorney Reed R. Kathrein in his pleading. “Plaintiff and other Class members who purchased or sold securities of Tesla have suffered significant losses and damages.”
Since then, Tesla’s board of directors is reportedly investigating the truth of Musk’s tweets.
Doubt that financing had authentically been secured began to spread, which is believed to have caused Tesla stock to fall by 2.4% on August 8 and 4.8% to $352.45 on August 9.
Investor lawsuits further allege that false statements in Mr. Musk’s August 13 tweet harmed class members.
“I’m excited to work with Silver Lake and Goldman Sachs as financial advisors . . . on the proposal to take Tesla private,” Mr. Musk announced. But about a week later, Musk had backpedaled, tweeting in a late-night blog post that taking the company private “would be even more time-consuming and distracting than initially anticipated,” and that “most of Tesla’s existing shareholders believe we are better off as a public company.”
“We saw it with Google and Facebook that these brash, young and highflying companies are run by people who are not necessarily steeped in the complexities of running a public company,” Mr. Dell’Angelo told PacerMonitor. “There are often growing pains, but Tesla has enough sophisticated institutional investors and a sophisticated board of directors who know how to right ship Tesla.”
In the meantime, Mr. Dell’Angelo is preparing his own class action securities fraud complaint against Tesla and CEO Elon Musk alleging violations of federal securities law.
“Elon Musk appeared to want all the benefits of being a public company with access to capital without complying with the obligations that come with participating in that public market,” said Mr. Dell’Angelo. “Obligations include the requirement that a CEO make complete truthful disclosures and accepting the reality that traders will short your stock. Musk took that personally.”
While Roseanne Barr is reportedly making plans to move to Israel when her old show returns as “The Conners,” sans her or her soon-to-be-killed-off character, Elon Musk will remain in the U.S. to sort through his legal liabilities. Although unlikely, analysts including former SEC chairman Harvey Pitt on CNBC, noted that Elon Musk could face criminal penalties if it’s found that he hadn’t secured financing at the time of his tweet about taking Tesla private.