Group 4:

Ziqi YAN
THE MUSK COMPLAINT
Gaia GATTI
Ilanna MARUANI
Sebastiano RAPALLINI
Steven PROVENZANO
Liesbeth VANDER HOEVEN
Executive Summary

• Definition and objectives of corporate disclosures

Theoretical outlines • Benefits and costs of corporate disclosures
• Laws and regulations of corporate disclosures

• Facts of the case

• The Settlements
The Musk Complaint
• Rationale behind the decision
• Legal Takeaways from this case

• Key findings
Conclusion
• He did it again
• Q&A?
Corporate Disclosures

The communication of information relating a firm's

performance and governance to the regulatory agency,
outside shareholders and stakeholders

Protect investors from Maintain fair, orderly, Facilitate capital

asymmetrical and efficient markets formation
information

Theoretical outlines The Musk Complaint Conclusion

Corporate Disclosures

FINANCIAL
2

3
1
MANDATORY

VOLUNTARY 4

NON-FINANCIAL

Theoretical outlines The Musk Complaint Conclusion

Benefits & Costs

Benefits Costs
Benefits
Shareholder value creation
Higher share prices
Direct costs
Higher price-to-book ratio of increased quantity and quality
Lower cost of capital of information disclosed
Additional investment implemented

Improvement in information Unfair competition

held by third parties Smallest firms bear the costs more heavily
Reduction in information asymmetry
Improved quality of investors’ expectation

Improved financial stability Governance costs

Reduction in bid-ask spread Costs generated because of the additional
More liquid market time spent by managers and their teams in
Reduction in the volatility of returns producing required information

Avoidance of scandals and

Greater risk aversion
change in managerial Resulting from pressure to provide
behavior stricter financial standards

Theoretical outlines The Musk Complaint Conclusion

5
 Disclosure Laws and Regulations

Public Company Private Company

Audiance SEC, shareholders and stakeholders Private

Annual reports
• 10-K annual reports to SEC
• Content and form being strictly governed
• Detailed financial and operating information
• Management response to specific questions
• Annual reports for shareholders
Information • Two-year audited balance sheet and a three-year audited statement of income and cash flows Depends
required • Five years of selected financial data on specific
• Management's discussion and analysis of the firm's financial condition circumstances

Periodic and timely disclosures

• Any information that might influence and affect investors: regarding the issuer, its business operations, its
financial condition, its corporate governance principles, its use of investor funds, etc.
• Extension: Sarbanes-Oxley Act of 2002

Channel SEC fillings, Website, Official media

Standards Accurate, timely (early–warnings), complete

Theoretical outlines The Musk Complaint Conclusion

Resources: SECURITIES ACT OF 1933; Securities Exchange Act of 1934; and extensions
Confidential non-public corporate information

Proprietary
information

Inside
information

Sensitive
information

Theoretical outlines The Musk Complaint Conclusion

Preserve boardroom confidentiality
Adopt robust confidentiality policy

Expressly address
disclosure by designated
directors to their sponsors

Send periodic reminders

Consider confidentiality
requirements for nomination
and qualification of directors

Theoretical outlines The Musk Complaint Conclusion

The Facts

August 7, 2018
E. Musk tweets

September 27, 2018

SEC. charges E. Musk

September 29, 2018

SEC. charges Tesla

Theoretical outlines The Musk Complaint Conclusion

 The Settlements

Payment
$20 million fines by both Musk and Tesla

Governance reform, i
Replacement of Musk as chairman of
the board of directors of Tesla

Governance reform, ii
Addition of two independent directors
to the Tesla board

Governance reform, iii

Creation of a new committee of independent directors
along with additional controls and procedures to
monitor Musk’s future communications

Theoretical outlines The Musk Complaint Conclusion

 The Rationale

“Investor support is
“Am considering taking Tesla confirmed. Only
private at $420. Funding secured.” reason why this is
not certain is that
it’s contingent on a
Violation of Rule 10b-5 under the shareholder vote.”
Securities Exchange Act of 1934

Musk’s apparent primary basis

for his tweets was a single 30-45
minute meeting on July 31 with
a sovereign investment fund

Before broadcasting his tweets to his over 22 million Twitter

followers, «Musk did not consult with Tesla’s Board of Directors»

Theoretical outlines The Musk Complaint Conclusion

Legal Takeaways • Tesla notified the market in 2013 that it intended to use
Musk’Twitter as a means to announce corporate information, but
failed to implement controls or procedures

• Imprudent tweets relating to corporate information are as

dangerous as improper disclosure in SEC filings

• CEO and management’s tweets have to be subjected to the

disclosure controls and procedures

SOCIAL MEDIAS
• Following sound disclosure principles will also enable members
of the management to face media’s response without making
mistakes (ex. Tesla’s head of investor relations)

INTERESTS AT STAKE • SEC’s chairman notes how different interests are involved at
once:

• The need of a equal and safe marketplace

• The necessity to safeguard company’s shareholders
ROLE OF DIRECTORS
• Key role of independent directors to safeguard shareholders’
interests:

• Correct CEO behavior once CEOs exhibit a proclivity for

off-the-cuff communications
• Compliance with the company’s disclosure policies

Theoretical outlines The Musk Complaint Conclusion

Conclusion
HE DID IT AGAIN !

Corporate Disclosure can be

either mandatory or voluntary and can
concern financial or non-financial
information. Cooperation is enforced by
the SEC. Accuracy and timeliness of the
information matter greatly.

Tesla had to restructure their Board of Directors

to ensure compliance with communication
procedures in the future

Disclosure procedures should also be followed when using alternative communication channels
such as Social Media

Theoretical outlines The Musk Complaint Conclusion

 Q&A

Theoretical outlines The Musk Complaint Conclusion