In the midst of its battles with Elon Musk over Musk’s attempt to walk away from his proposed takeover of the company, Twitter was rocked by the news that a whistleblower had sent Congress and federal agencies explosive reports of “major security problems” at the company. According to the news reports, the whistleblower’s disclosure not only detailed privacy and cybersecurity vulnerabilities at Twitter, but also included allegations that company management had misled its own corporate board and government regulators about the vulnerabilities. Among other things, these revelations triggered a Congressional inquiry. And now, a plaintiff shareholder has launched a securities class action lawsuit against the company and several of its executives, based on the whistleblower’s allegations. As discussed below, the complaint has several interesting features.
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Musk’s Twitter Play Draws Securities Suit
The hard part about maintaining a blog is finding interesting topics. It isn’t always easy coming up with things I want to write about. But when all else fails, I can always count on Elon Musk to come up with something. At regular intervals, Musk is out there saying and doing things that are not only interesting and provocative but that are solidly blogworthy. In the last few days, Musk has been at it again, not only making himself the largest shareholder of the social media company Twitter and thereby putting himself on the front pages of the business pages, but, as discussed below, drawing a securities class action lawsuit, as well.
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Guest Post: Why Tweets May Not Validate Securities Class Action Liability
As I have noted in prior posts (most recently here), plaintiffs’ lawyers recently have attempted to rely on statements in social media posts as the basis on which to assert liability under the securities laws. In the following guest post, Nessim Mezrahi considers whether statements in posts on Twitter can support liability for securities law violations. Mezrahi is co-founder and CEO of SAR, a securities class action data analytics and software company. A version of this article previously was published on Law360. I would like to thank Nessim for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Nessim’s article.
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Upbeat Social Media Post Draws Securities Suit
At least since Elon Musk’s infamous “take private” Tweet, we have known that communications on social media can potentially give rise to liability under the federal securities laws. Now, after a company posted an allegedly upbeat Tweet ahead of its full quarterly earnings release, and after the company’s share price rose on the Tweet but slumped on the later release of the detailed results, the company has been hit with a securities class action lawsuit based on the Tweet. A copy of the complaint filed on February 28, 2022 against Affirm Holdings can be found here.
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Twitter Settles Securities Suit for $809.5 Million
The parties to the long-running Twitter securities class action lawsuit have agreed to settle the suit for a payment of $809.5 million, one of the largest securities class action settlements of all time. The settlement is subject to court approval. A copy of the company’s September 20, 2021 press release announcing the settlement can be found here. The plaintiffs’ lawyers’ statement about the settlement can be found here.
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In First for U.S. Tech Firm, Twitter Hit with GDPR Fine
On December 15, 2020, the Irish Data Protection Commission (DPC) announced the imposition under the General Data Protection Regulation (GDPR) of a €450,000 fine against the social media company Twitter for its delay in reporting to DPC a data breach the company sustained in late 2018. According to the DPC’s press release about the fine, the DPC’s inquiry concerning the Twitter data breach was the first to go through the GDPR “dispute resolution” process since the GDPR’s introduction and was also the first decision in a “big tech” case in which all EU supervisory authorities were consulted as Concerned Supervisory Authorities. The DPC’s December 9, 2020 order can be found here. The DPC’s December 15, 2020 press release can be found here.
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Musk’s “Take Private” Tweets Held Actionable
In a now infamous August 7, 2018 post on his Twitter account, Tesla CEO Elon Musk stated that he was “considering taking Tesla private at $420. Funding secured.” This post and several subsequent messages ultimately were the subject of an SEC enforcement proceeding (later settled) as well as several securities class action lawsuits (later consolidated). On April 15, 2020, Northern District of California Edward Chen denied the defendants’ motion to dismiss the consolidated securities lawsuit, finding that the “take private” Tweet and other messages were false and misleading. Judge Chen’s opinion is of interest because of the high-profile nature of the allegations, but also for what it says about corporate securities liability exposure for executives’ social media statements. Judge Chen’s opinion can be found here.
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Guest Post: The SEC/Musk/Tesla Settlement: The Dawning of a New Era of SEC Internet Enforcement
As I detailed in a post at the time (here), on Thursday last week, the SEC filed a securities fraud enforcement action against Tesla Chairman and CEO Elon Musk in connection with his now infamous tweets, in which he said he had “secured” funding to take the company private at a substantial premium over the company’s then-current share price. On Saturday, September 29, 2018, the SEC announced in a press release (here) that it had reached a settlement of the action with Musk, as well as in a separate action against Tesla filed simultaneously with the settlement. In the following guest post, John Reed Stark, the President of John Reed Stark Consulting and former Chief of the SEC’s Office of Internet Enforcement, takes a look at the SEC’s enforcement actions and settlements with Musk and Tesla and provides his insight about what these developments may signify as far as the SEC’s enforcement posture regarding communications on the Internet. A version of this article originally appeared on the Securities Docket. I would like to thank John for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is John’s article.
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SEC Files Securities Fraud Suit Against Elon Musk Over Take-Private Tweets
Elon Musk’s August 7, 2018 Tweets, in which he had “secured” funding to take Tesla private at a substantial premium over the then-current share price, have already produced a storm of controversy and a series of securities class action lawsuits against him and the company. The Tesla CEO’s now-infamous Tweets have now also led to a SEC enforcement action against him, in which the agency alleges that Musk’s statements in the Tweets were “false and/or misleading” because “he did not have an adequate basis in fact for making these assertions.” The agency seeks injunctive relief, disgorgement, civil penalties, and a bar prohibiting Musk from serving as an officer or director of any public company. The SEC’s complaint against Musk can be found here. The SEC’s September 27, 2018 press release about the enforcement action can be found here.
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Tesla Investors File Securities Suits Over Elon Musk’s Take-Private Tweets
I have long thought that it was only a matter of time before somebody filed a securities class action lawsuit based on disclosures made through social media. I knew we were going to see that lawsuit someday or other. Well, the day has arrived. On Friday, August 10, 2018, two Tesla investors each filed separate securities class action lawsuits against Tesla, Inc. and its Chairman, CEO, and largest shareholder, Elon Musk, based on Musk’s tweets last Tuesday that he was considering a take-private deal for which he had “secured” funding and that only shareholder approval was required for completion of the deal. As discussed below, there are a host of interesting things about the lawsuit and about the surrounding circumstances.
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