Elon Musk vs. SEC: Corporate Governance and Ethics Examined

Elon Musk and Tesla v. SEC the limits of corporate governance A Case Study by Nathara Moise

In 2018, Elon Musk posted on Twitter that he was considering taking Tesla private at $420 per share, which resulted in an increase in Tesla’s stock price. This tweet resulted in an investigation by the Securities and Exchange Commission (SEC), which charged Musk with securities fraud.

The SEC filed a civil lawsuit against Musk, claiming he made inaccurate and misleading statements. They also filed a complaint against Tesla due to the company’s failure to establish disclosure controls and discuss if information like the type disclosed by CEO Musk was required to be disclosed. At the end of September 2018, Musk and Tesla paid the SEC a $20,000,000 civil penalty.

In 2023, Musk attempted to withdraw from the settlement, but the judge denied that request. The settlement entails other things besides the monetary part. Specific corporate governance changes were included in the settlement, and Musk became ineligible to be reelected as Tesla’s chairman after three years. Tesla must implement a new committee of directors and have additional procedures to manage Musk’s communication.

This case has led to many legal issues. The SEC claimed that Musk violated Section 10(b) of the Securities Exchange Act and Rule 10b-5, which are anti-fraud provisions and enforce liability for misinformation and misstatements of specific facts. Musk made false statements on social media, violating these sections.

This case was handled well by making Musk pay for his actions and monitoring Musk’s social media accounts to prevent misinformation. I think the settlement could have been stricter, like greater penalties, maybe causing Musk to step down sooner and greater restrictions on what he can do. More social media restrictions should be implemented, as well as disclosures on what can and cannot be posted on social media. The trial could’ve been public to show more corporations how to govern their corporation and keep certain information appropriately disclosed. These issues could happen with smaller corporations but may not be taken seriously or broadcast.

This case has led to different business and ethical implications. For instance, because of Musk’s false statement on Twitter, many ad programs that rely on various platforms to show their ads and allocate funds may feel less confident in platforms with previous misinformation issues. Advertisers must ensure their platforms are transparent and accurate to attract more people. Musk’s actions have led to unpredictability, which could lead to inevitable consequences. Twitter may also see a decline in stock price, which could deter advertisers because of these previous legal issues.

As a future legal professional and a current journalism student, I found this case to be an example of the intersection of leadership, honesty, and obligation. Elon Musk is a well-known individual who has had a significant influence. This case demonstrates the legal issues and implications that can occur when corporate executives circumvent disclosure regulations. I admire that the SEC was quick with their response and settlement, but the consequences could have been tougher. Musk should have stepped down from the CEO position sooner, and Musk kept questioning and trying to step back from the settlement, but if the guidelines were more rigid, he wouldn’t have much room to do so. As I have written an article related to this issue, this case reiterates the importance of strong corporate governance and how corporations should implement guidelines to prevent legal problems like these. Everyone in a corporation, including the CEO, is subject to adhere to specific procedures and are to be held accountable if they don’t abide by them.

Timeline

August 7, 2018 – Musk made a tweet on the social media platform Twitter saying that he has “Funding Secured” to take Tesla private.

September 27, 2018 – Securities and Exchange Commission (SEC) filed a lawsuit against Musk and Tesla.

September 29, 2018 – Musk and Tesla each agreed to pay SEC $20 million.

October 4 and December 9, 2018 – Musk takes a aim at SEC during an interview.

February 19, 2019 – Musk made another tweet about an estimate of vehicle production.

February 25 – The SEC said Musk violated his settlement agreement.

March 11 – Musk's attorney said that The SEC was overstepping.

March 18 – The SEC responds to Musk’s attorney saying that Musk’s tweet violated their agreement.

March 22- Musk attorney responds back.

April 4 – Musk attorney and The SEC agreed to argue and present their case in front of a judge.

Citations

Elon R. Musk (no date) U.S. Securities and Exchange Commission. Available at: https://www.sec.gov/enforcement-litigation/litigation-releases/lr-26219 (Accessed: 10 June 2025).

Klein, J. (2023) Key takeaways from Elon Musk vs. the SEC, Directors & Boards. Available at: https://www.directorsandboards.com/board-duties/corporate-policies/key-takeaways-from-elon-musk-vs-the-sec/ (Accessed: 10 June 2025).

Matousek, M. (no date) Elon Musk and the SEC are in a fierce battle over one of Musk’s tweets - here’s what you need to know about their dispute, Business Insider. Available at: https://www.businessinsider.com/elon-musk-and-sec-battle-timeline-2019-3#april-4-oral-arguments-10 (Accessed: 10 June 2025).

SEC lawsuit against Elon Musk: Implications for programmatic advertising & market stability (no date) SEC Lawsuit Against Elon Musk: Implications for Programmatic Advertising & Market Stability. Available at: https://www.beklever.com/blog/elon-musks-sec-lawsuit#:~:text=The%20SEC’s%20suit%20alleges%20that,fairness%2C%20and%20the%20ethical%20obligations (Accessed: 10 June 2025).

SEC v. Elon Musk Case no. 18-cv-8865 (S.D.N.Y.) SEC v. Tesla, inc.. case no. 18-cv-8947 (S.D.N.Y.) (no date) U.S. Securities and Exchange Commission. Available at: https://www.sec.gov/enforcement-litigation/distributions-for-harmed-investors/sec-v-elon-musk-case-no-18-cv-8865-sdny-sec-v-tesla-inc-case-no-18-cv-8947-sdny#:~:text=18%2Dcv%2D8947%20(S.D.N.Y.),-Oct.&text=On%20September%2027%2C%202018%2C%20the,a%20publicly%20traded%20company%2C%20private. (Accessed: 10 June 2025).

Securities exchange act of 1934 (no date) Legal Information Institute. Available at: https://www.law.cornell.edu/wex/securities_exchange_act_of_1934#:~:text=Section%2010(b)%20(codified,%2D43)%20(2008)). (Accessed: 10 June 2025).

Tesla and Musk: A timeline of turbulence and triumph (no date) The Drum. Available at: https://www.thedrum.com/news/2025/03/27/tesla-and-musk-timeline-turbulence-and-triumph#:~:text=2018:%20Musk%20(%20Elon%20Musk%20)%20’s,by%20the%20Securities%20and%20Exchange%20Commission%20(SEC). (Accessed: 10 June 2025).