Why was Elon Musk, who famously ditched Tesla’s PR department, once charged with securities fraud?

Musk’s “misleading Tweets” in 2018 behind allegations

Elon Musk, CEO of the electric car company Tesla, and the wealthiest person in the world as of 2022, was charged with securities fraud by the U.S. Securities and Exchange Commission In September, 2018.

Musk, who dissolved Tesla’s Public Relations department in 2020, has said that he doesn’t believe in “manipulating public opinion.”

However, according to the SEC, Musk, then Chairman and CEO of Tesla Inc., had posted a series of misleading tweets in August 2018, related to potentially taking Tesla private. The tweets, which reached as many as 22 million followers, caused Tesla’s stock price to jump over 6 percent.

Musk tweeted that he could take Tesla private at $420 per share. The SEC, however, alleged that the transaction was uncertain, and had not been discussed with financing partners.

“An officer’s celebrity status or reputation as a technological innovator does not give license to take those responsibilities lightly,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division, of Musk’s tweets.

Due to the tweets, and their resulting effects on the stock market, the SEC sought civil penalties against Musk and to bar him from serving as an officer of a public company.

Musk and Tesla agreed to settle with the SEC without admitting or denying the allegations. As part of the settlement, both Musk and Tesla paid $20 million each in penalties to the SEC, which would be distributed to harmed investors.  In addition, Musk agreed to step down from his role as Tesla’s Chairman and that he could not be re-elected to the Chairman role for three years.

Looking at Musk’s very consequential foible, It’s clear that keeping in mind the importance of good and smart public relations is important for even the most established of companies and that any small public statement can leave a brand vulnerable to litigation or other devastating consequences.

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