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Slow Disclosure of Tesla Raising Governance, Social Media Concerns

In his blog, Musk said he made the announcement on Twitter to ensure all investors were aware of his plan before speaking with the company's largest shareholders

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Tesla CEO
According to Musk, "two thirds" of Tesla's current stockholders would be interested in continuing to hold the firm's shares once it goes private. (VOA)
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Tesla’s handling of Chief Executive Elon Musk’s proposal to take the carmaker private and its failure to promptly file a formal disclosure has raised governance concerns and sparked questions about how companies use social media.

Musk stunned investors last Tuesday by announcing on Twitter that he was considering taking Tesla private in a potential $72 billion transaction and that “funding” had been “secured.”

Tesla’s shares closed up 11 percent before retrenching after the Wall Street Journalreported that the U.S. Securities and Exchange Commission (SEC) had asked Tesla why Musk announced his plans on Twitter and whether his statement was truthful.

Musk provided no details of his funding until Monday, when he said in a blog on Tesla’s website that he was in discussions with Saudi Arabia’s sovereign wealth fund and other potential backers but that financing was not yet nailed down.

Musk said his tweet and blogs were issued in his personal capacity as a private bidder for Tesla’s stock. A Tesla spokesman pointed Reuters to Musk’s blog in response to a request for comment.

Putting aside whether Musk misled anyone, the unorthodox manner in which he announced the news and Tesla’s failure to promptly clarify the situation with a regulatory filing is a corporate governance lapse that raises questions about how companies use social media to release market-moving news, securities lawyers said.

Tesla CEO
Tesla CEO and founder of the Boring Company Elon Musk speaks at a news conference in Chicago, June 14, 2018. (VOA)

“Management buyouts or other take-private transactions already suffer from serious information asymmetry between management and public shareholders,” said Gabriel Rauterberg, a University of Michigan law professor.

SEC rules typically require companies to file an 8-K form within four business days of a significant corporate event.

While several securities lawyers said Musk’s tweets alone did not trigger this obligation, such a filing would be prudent given the unusual circumstances, David Axelrod, a partner at law firm Ballard Spahr LLP, said.

“An 8-K would provide some more details, it would say what stage negotiations are in, and provide more information than 53 characters in a tweet,” he added.

Full and fair disclosure

SEC guidelines published in 2013 allow companies and their executives to use social media to distribute material information, provided investors have been alerted that this is a possibility. Tesla did this in a 2013 filing.

But such disclosures have to be full and fair, meaning the information is complete and accessible by all investors at the same time, a bar that Musk’s tweets may not have met.

“Twitter is not designed to provide full and fair disclosure. That doesn’t mean that you couldn’t, but in a series of 20 to 30 characters I’m not sure you’re getting full disclosure,” said Zachary Fallon, a former SEC attorney and principal at law firm Blakemore Fallon.

 

Elon Musk
Elon Musk, founder, CEO and lead designer at SpaceX. (VOA)

The SEC declined to comment Monday.

Securities lawyers said there was also a question mark over whether Musk selectively disclosed information on the possible terms of the deal when he subsequently replied to followers, two of whom claim in their handles to be investors.

Those tweets were not immediately visible to all followers of Musk’s main feed until he retweeted them.

History of Twitter use

The 47-year-old billionaire’s history of joking about Tesla and using twitter to bait his critics also appears to have undermined trust in Musk’s feed as a reliable source of company information, with many investors initially believing Tuesday’s tweet was a prank.

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In his blog, Musk said he made the announcement on Twitter to ensure all investors were aware of his plan before speaking with the company’s largest shareholders.

But his claim to have done so as a private person presents a potential conflict of interest, said Nimish Patel, a lawyer with Mitchell Silberberg & Knupp.

“If you’re speaking on behalf of the company using resources like Twitter and the company website, while at the same time saying you’re a private individual expressing your own personal views, you are being inconsistent and creating confusion for investors. And when there’s confusion, the SEC is likely going to get involved,” he added. (VOA)

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SpaceX Names Yusaku Maezawa As Their First Private Passenger

SpaceX in February transfixed a global audience with the successful test launch of its Falcon Heavy, the most powerful operational rocket in the world.

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Elon Musk
Yusaku Maezawa, the chief executive of Zozo, which operates Japan's popular fashion shopping site Zozotown and is officially called Start Today Co, speaks at an event launching the debut of its formal apparel items, in Tokyo, Japan. VOA

SpaceX, Elon Musk’s space transportation company, on Monday named its first private passenger as Japanese businessman Yusaku Maezawa, the founder and chief executive of online fashion retailer Zozo.

A former drummer in a punk band, billionaire Maezawa will take a trip around the moon planned for 2023 aboard its forthcoming Big Falcon Rocket spaceship, taking the race to commercialize space travel to new heights.

The first person to travel to the moon since the United States’ Apollo missions ended in 1972, Maezawa’s identity was revealed at an event on Monday evening at the company’s headquarters and rocket factory in the Los Angeles suburb of Hawthorne.

 

Elon Musk, spacex
Elon Musk. IANS

 

Maezawa, who is most famous outside Japan for his record-breaking $110 million purchase of an untitled 1982 Jean-Michel Basquiat painting, said he would invite six to eight artists to join him on the lunar orbit mission.

The billionaire chief executive of electric car maker Tesla, Musk revealed more details of the Big Falcon Rocket, or BFR, the super heavy-lift launch vehicle that he promises will shuttle passengers to the moon and eventually fly humans and cargo to Mars. The BFR could be conducting its first orbital flights in about two to three years, he said.

Musk had previously said he wanted the rocket to be ready for an unpiloted trip to Mars in 2022, with a crewed flight in 2024, though his ambitious production targets have been known to slip.

“Its not 100 percent certain we can bring this to flight,” Musk said of the lunar mission.

SpaceX
SpaceX’s BFR launch vehicle is seen in this handout image provided. VOA

The amount Maezawa is paying for the trip was not disclosed, however, Musk said the businessman outlaid a significant deposit and will have a material impact on the cost of developing the BFR.

The 42-year-old Maezawa is one of Japan’s most colorful executives and is a regular fixture in the country’s gossipy weeklies with his collection of foreign and Japanese art, fast cars and celebrity girlfriend.

Maezawa made his fortune by founding the wildly popular shopping site Zozotown. His company Zozo, officially called Start Today Co Ltd, also offers a made-to-measure service using a polka dot bodysuit, the Zozosuit.

With SpaceX, Amazon.com founder Jeff Bezos’ Blue Origin and entrepreneur Richard Branson’s Virgin Galactic battling it out to launch private-sector spacecraft, Maezawa will join a growing list of celebrities and the ultra-rich who have secured seats on flights offered on the under-development vessels.

SpaceX
A SpaceX Falcon Heavy rocket lifts off from historic launch pad 39-A at the Kennedy Space Center in Cape Canaveral, Florida. VOA

 

Those who have signed up to fly on Virgin Galactic sub-orbital missions include actor Leonardo DiCaprio and pop star Justin Bieber. A 90-minute flight costs $250,000.

Short sightseeing trips to space aboard Blue Origin’s New Shepard rocket are likely to cost around $200,000 to $300,000, at least to start, Reuters reported in July.

SpaceX has already upended the space industry with its relatively low-cost reusable Falcon 9 rockets. The company has completed more than 50 successful Falcon launches and snagged billions of dollars’ worth of contracts, including deals with NASA and the U.S. Department of Defense.

Also Read: Why Elon Musk has Suddenly Gone Ballistic On Twitter

SpaceX in February transfixed a global audience with the successful test launch of its Falcon Heavy, the most powerful operational rocket in the world. (VOA)