Back in 2018, the Securities and Exchange Commission settled a securities fraud charge with Tesla and Elon Musk. The charge arose as a result of a Musk tweet that he had secured funding to take Tesla private, causing Tesla’s stock price to soar. The settlement resulted in a $20 million fine for Musk and a $20 million fine for Tesla, among other terms.
Fast forward to 2021, the Securities and Exchange Commission may be investigating Elon Musk’s barrage of tweets in relation to cryptocurrencies. His tweets have caused prices of popular cryptocurrencies like Bitcoin, Dogecoin and Ethereum to fluctuate massively.
Prices of Bitcoin rallied when Musk tweeted that Tesla would accept it as a form of payment. A few days later though, Musk announced that Tesla will no longer accept Bitcoin purchasing due to environmental concerns. The single tweet from Musk caused the prices of Bitcoin to fall from $54,500 a coin to less than $50,000 in less than 24 hours.
Dogecoin reached record highs after a series of tweets by Musk in May. The crypto which traded at less than one cent in January had risen to 70 cents in May, thanks to tweets by Musk. Whereas Musk’s comments on Saturday Night Live calling Dogecoin a “hustle” caused this crypto to crash 30%.
There is little doubt that the cryptos have moved in tandem with tweets by Musk. The investors seem to over analyze his tweets; give them more meaning or find hidden implications. Does that mean such “manipulation” is actionable by SEC, the answer seems to be no.
For starters, SEC does not have jurisdiction over cryptos like Bitcoin and Dogecoin as they are not considered a security under the Howey Test. Moreover, an argument can be made that these tweets are not aimed at enriching Musk or Tesla or based off inside information. One way that Musk may find himself in cross hairs of SEC is Tesla’s $1.5 billion investment in Bitcoin dropped by $370 million by a single tweet by their CEO. While the Company disclosed the risks associated with this investment in their SEC filing, it certainly did not consider their CEO’s twitter activity.
Musk is a well-known, long-term believer in crypto, and he mostly tweeted his personal beliefs and that is going to be hard for the SEC to find fault with. For right now, the SEC seems to be focused on educating the investors. The SEC Investor Ed recently tweeted warning people that making investments just because someone famous said so is not a good idea.
If you have any questions or want to learn more, please contact Radhika Gupta (firstname.lastname@example.org). You can also follow Lowey Dannenberg on Twitter at @LoweyDannenberg for latest updates.