Saturday, January 19, 2019

Retweets are not endorsements

Forgive me for yet another foray into the vagaries of Tesla, but the company provides your humble blogger with an endless supply of discussion material.  (My own prior posts on disparate Tesla-related subjects can be found here, here, and here; Joan Heminway also commented on Tesla here.)

Earlier this month, it was reported that Elon Musk retweeted a Forbes report that Tesla had outsold all other US luxury car makers, only to delete the tweet when it turned out the report was inaccurate (it had compared Tesla’s global sales with US sales by other car manufacturers).  Such was the creation of a classroom hypothetical if I ever saw one.

I have so many questions:

1.    Why did the Chief Executive Officer of Tesla not realize that the sales report was inaccurate, and if he did realize it, did he retweet anyway in hopes that no one would spot the error?

2.    If Musk was aware the report was false, could he be liable for having made a false statement in connection with a securities transaction in violation of Section 10(b)?

A.  We might ask whether Musk “made” a statement at all.  As I’ve previously posted here and here, the Supreme Court is set to decide in Lorenzo v. Securities & Exchange Commission whether merely passing on someone else’s false representation – attributed to that other person – constitutes a false statement or otherwise fraudulent action by the conduit.

At the same time, there is a long (pre-Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011)) history of courts holding that corporate executives are responsible for the content of analyst reports when they place their imprimatur upon them. See, e.g., In re Cabletron Sys. Inc., 311 F.3d 11 (1st Cir. 2002); Elkind v. Liggett & Myers, Inc., 635 F.2d 156 (2d Cir. 1980); Southland Sec. Corp. v. INSpire Ins. Solutions Inc., 365 F.3d 353 (5th Cir. 2004).  Did Musk’s retweet qualify?  Was his authorship “implicit from surrounding circumstances” under Janus

We might say this is different from the Lorenzo case because in that instance, the conduit positioned himself as an employee, passing on information pursuant to his boss’s instruction; Musk, by contrast, apparently chose to single out this particular article; the curation itself may be interpreted as a kind of endorsement.

What if his profile said “retweets are not endorsements”? (At the time of this posting, by the way, it did not.)  And – continuing with the fancy that this is a classroom discussion – if you were corporate counsel, would you insist on such a disclaimer?

B. If Musk did make a false statement, was it material?  After all, the original false statement was already out there and presumably widely distributed.  Moreover, it concerned factual information that was easy to check.  In the past, courts have assumed that efficient markets have a heroic ability to self-correct under much more challenging circumstances (see my prior post; see also my forthcoming essay addressing the subject). If reporters’ synthesis of public raw data is not “material” for securities law purposes, see, e.g., In re Merck & Co. Securities Litigation, 432 F.3d 261 (3d Cir. 2005), it’s hard to see why Musk’s retweet of an easily-debunked false news report would be any more significant.

3.     Where was the monitor? Pursuant to Musk’s settlement with the SEC over earlier ill-considered tweets, Musk agreed to:

comply with all mandatory procedures implemented by Tesla, Inc. (the “Company”) regarding (i) the oversight of communications relating to the Company made in any format, including, but not limited to, posts on social media (e.g. Twitter), the Company’s website (e.g. the Company’s blog), press releases, and investor calls, and (ii) the pre-approval of any such written communications that contain, or reasonably could contain, information material to the Company or its shareholders.

Now, to some extent, Musk has already indicated that he does not intend to hew to the terms of the settlement with religious fervor, but leaving that point aside, does the existence of the tweet in this instance suggest that there really is no monitor?  That the monitor did not consider the retweet material? Other?

In any event, whatever else may come of Musk’s stewardship of Tesla, it’s nice to know I’ll have things to blog about so long as he remains at the helm.

Ann Lipton | Permalink


Sadly, these are all good questions, Ann. I like the thoughts you share here, especially regarding materiality given the "truth on the market" opinions. This does provide great fodder for classroom discussion. I wish I were teaching securities regulation this semester . . . .

One thing I think about on these Twitter communication issues (brought out by you here in discussing the endorsement doctrine) is whether the level of diligence we place on executives and others in a Twitter-based world will and should be different from that imposed in a snail-mail and even e-mail world. On the one hand, information is easier to get. On the other hand, there is so much of it . . . .

Having said that, here--where the information at issue is (should be) squarely in the hands of the chief executive--the level of effort to cross-check before posting seems trivial. It may be the least we can ask . . . .

Posted by: joanheminway | Jan 21, 2019 7:31:16 AM

Hi Joan - I think you're right, there really will be questions about what kind of diligence we expect from CEOs given the nature of the media. In this case, though, given the nature of the info - and the problems Musk had had in the past - it just raises more concerns (even if in this case probably no harm was done).

Posted by: Ann Lipton | Jan 21, 2019 7:51:46 AM

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