Musk suggests Tesla's stock price should fall. So it did

Musk caps a strange week by suggesting Tesla’s stock price should fall. So it did

Musk and the musician Grimes in the old days, at a New York City gala in 2018, before the coronavirus hit. Grimes is now pregnant, and Musk tweeted Friday morning that she is mad at him.

May 2, 2020 6 AM PT

The angry girlfriend. The Willy Wonka house. “The Star Spangled Banner.” The selling of all physical possessions. The dying light of consciousness.

Of all the bizarre tweets Elon Musk let loose Friday morning, one stands out — not for its entertainment value, but because it might violate a fraud-related consent decree he agreed to that’s intended to control his social media behavior.

“Tesla stock price is too high imo,” he tweeted Friday morning at 8:11.

That appeared to have an immediate effect on Tesla’s stock price. Shares plunged as much as 13% on high volume before closing down 10.3% at $701.32.

Under a fraud-charge settlement with the U.S. Securities and Exchange Commission in 2018, Musk agreed to have a company lawyer review and approve information “material” to the company or its shareholders before Musk made it public.

The fraud charges were filed after Musk tweeted on Aug. 7, 2018, that he had “funding secured” to take Tesla private at $420 a share. No funding was ever secured. The false claim caused stock price gyrations, and investors short and long said they were harmed.

Musk’s latest tweet puts pressure on the SEC, said Jay Dubow, an attorney and securities expert at law firm Pepper Hamilton.

“He’s really rubbing their noses in it,” he said. “It’s clearly a breach of the [decree]. If they don’t do something, they run the risk of looking like people can flout their orders.”

But an SEC case might not be the slam-dunk it appears, said James Park, a law professor at UCLA. That’s because the SEC and Musk agreed to amend the decree in April 2019, and a language change could protect Musk this time.

The change was made after Musk tweeted forecasts about building 500,000 cars in 2019, without a lawyer’s review. A company attorney later corrected the tweet, making it 400,000. The actual production number for 2019 was 365,000.

Musk argued the tweet wasn’t a violation because it wasn’t material information. The amended order, approved by a federal court, listed a variety of subjects that required vetting — but the word “material” was removed.

The new language requires lawyer approval for “the Company’s financial condition, statements, or results, including earnings or guidance.”

“Tweeting about stock price is not necessarily about the financial condition of the company, and it’s possible it doesn’t fall within the more specific settlement,” Park said.

The big question now is whether the SEC will ignore it. (Harvey Pitt, a former SEC chairman who now leads the advisory firm Kalorama Partners, seems to think it will. “The SEC has bigger fish to fry,” Pitt told Bloomberg Television.)

The same goes for Tesla’s board of directors, one of the highest-paid boards in any industry and widely considered to be a rubber stamp for Musk.

“They’re really hamstrung about this because the company is essentially [Musk] at this point,” Dubow said. “I don’t know what recourse they have. They’re not going to fire him.”

If the tweet exposes the board to any court-awarded damages, however, its members could be left dependent on Musk to protect their personal wealth. In another strange twist at a company known for them, Tesla recently announced that because premiums for directors and officers liability insurance have risen so much for the company, Musk himself will provide that insurance to his board of directors.

“I don’t know how comfortable I’d be in that situation,” Dubow said. As a Tesla board member, “do you have to sue Musk if he’s not going to live up to his bargain? It’s a strange situation.”

Friday’s tweet storm put a cap on an already tense week. During a conference call with stock analysts Wednesday, after being asked about Tesla’s cash position, he tore into a county order that will keep Tesla’s Fremont, Calif., factory closed through the end of May. “Fascist,” he called it.

That followed an earlier string of tweets that included the all-in-caps message, “FREE AMERICA NOW.”

Musk obviously is upset because the county shelter order is not good for his business. But why would he think his stock price is too high? There are many theories, all pure speculation. Only Musk knows what’s going on in his own head.

He ended his Friday morning Twitter on a personal note:

“My gf @Grimezsz is mad at me.”