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Elon Musk could end up in SEC’s net for routinely blocking followers on Twitter

, / 2022 0

It would have been illegal for Elon Musk's tweet to announce crucial market-moving information on Tuesday: he's "considering taking Tesla private," but not for the reasons most people think.

The use of social media to disclose a company's information that can significantly affect its stock market may seem informal. But that was before 2013 when Securities and Exchange Commission (SEC) approved social media as a valid communication channel for company investors - provided it informs the investors to look up there for updates. Few months after this approval, Tesla complied with the requirement, directing investors to “please follow Elon Musk’s and Tesla’s Twitter accounts” for more information, during its earnings press release in November 2013.

A former SEC regulator who played a part in establishing the agency's policy for social media has made it public that Tesla CEO’s habit on Twitter could dent the company's compliance with the policy. Elon Musk frequently blocks people from following his Twitter handle, including investors.

According to Regulation FD rule, SEC considers announcements on social media as a fair disclosure requirement. The rule opines that companies' methods of communication must be “reasonably designed to provide broad, non-exclusionary distribution of the information to the public.”

SpaceX Founder Elon Musk

Image: Elon Musk, chief executive of Tesla and SpaceX.

The most important thing is to ensure that everyone gets the information, says SEC former deputy chief of staff Michael Liftik.  “But when you start blocking, that kind of does change the equation, because that kind of becomes a selective disclosure if you’re not letting anyone who wants to follow you, follow you. I do think that creates problems,” he added.

Fortune alleged to have identified at least 36 persons who said Musk has blocked them from following him on Twitter, with investors included. Fortune Journalist Jen Wieczner also disclosed how disappointing it felt to be blocked by Musk in 2016 for identifying lapses in Tesla and SolarCity merger in an article. The list also includes some other journalists at Fortune, and Hedge fund manager Mark Spiegel.

“If he blocks anyone who says anything negative about Tesla—you say ‘I don’t like your cars,’ you’re blocked—and he really has a pattern of blocking a lot of people, I do think that raises particular questions about whether he has turned that open channel back into a selective channel,” former SEC regulator Liftik said.

A challenge here is the damaging end blocked persons are left in. Investors that are out of the loop will be gravely disadvantaged if they rely on short-term buying and selling stock. They would be open to taking decisions late. Short-seller Spiegel who has been on Musk's blocked list for being an outspoken critic of Tesla saw the company's stock jump before finding out about Musk's going-private plan. “He’s blocked me for years. I have to use a separate web browser and ID to follow him,” Spiegel told Fortune.

The Securities and Exchange Commission is reportedly probing Elon Musk tweet on Tuesday about going private and the Tesla's public statements to investors, TheGuardian reports. It is not clear if Musk Twitter blocking practice is also being reviewed. But the SEC will consider the problem of selectivity while determining if Tesla has violated the agency's social media policy.

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