Senator Elizabeth Warren is raising concerns about conflicts of interest and potential legal violations for Tesla following Elon Musk’s takeover of Twitter.
In a letter to Tesla (TSLA) Chair Robyn Denholm, the Massachusetts Democrat argued Tesla (TSLA) shareholders may be hurt by its CEO’s ownership of Tesla (TSLA) and questioned whether the electric car maker’s board is doing enough to address the issues it poses.
Warren posed a series of questions about how Tesla’s board is dealing with “conflicts of interest, misappropriation of corporate assets and other actions by Mr. Musk that appear not to be in the best interests of Tesla and its shareholders.”
Tesla did not immediately respond to a request for comment on the letter, which The New York Times previously reported on.
Since Musk disclosed in early April that he had taken a major stake in Twitter, the Tesla’s shares have plunged by about 58%, a selloff that has erased nearly $800 billion of market value. Musk, who recently lost his status as the world’s richest person, has repeatedly unloaded Tesla shares in recent months, including another $3.6 billion worth earlier this month.
“Mr. Musk’s acquisition created unavoidable conflicts of interest,” Warren wrote in the letter dated Sunday.
Warren, who has clashed with Musk in the past, specifically called out the fact that that Twitter relies on advertising revenue from General Motors, Ford, Chevrolet and other direct rivals of Tesla.
“As the owner of Twitter, Mr. Musk may decide to run the company to maximize badly-needed revenue, even if that includes great deals for Tesla’s competitors and potential injury to Tesla,” Warren wrote. “Or, perhaps the opposite will occur. As part of his fiduciary duty to Tesla, Mr. Musk may run Twitter to benefit Tesla: for example, he could subtly shift Twitter algorithms so that praise of Tesla products receive greater attention and criticism of Tesla products will be suppressed.”
Warren highlighted questions about potential violations of securities or other laws caused by Musk reportedly pulling key Tesla software engineers and other employees into Twitter.
“This use of Tesla employees raises obvious questions about whether Mr. Musk is appropriating resources from a publicly traded firm, Tesla, to benefit his own private company, Twitter,” Warren said, noting it would violate Musk’s legal duty of loyalty to Twitter and may run afoul of “anti-tunneling” rules that are designed to prevent insiders from extracting resources form their firms.
Noting Tesla’s board has legal obligations it must fulfill, Warren asked the board to respond to a series of questions about its handling of the situation by January 3.
Tesla gets downgraded over Musk’s antics
Meanwhile, Musk’s management of Twitter, including the banning of multiple journalists, has “severely damaged” market sentiment around Tesla, and risks sparking a backlash from advertisers and consumers, a Wall Street analyst warned on Monday.
Oppenheimer & Co. downgraded its rating on Tesla, where Musk is the CEO, solely because of risks posed by the billionaire’s ownership and management of Twitter.
“We believe Mr. Musk is increasingly isolated as the steward of Twitter’s finances with his user management on the platform. We see potential for a negative feedback loop from departure of Twitter advertisers and users,” Oppenheimer analyst Colin Rusch wrote to clients.
An exodus of advertisers will only further erode Twitter’s finances and force Musk to unload even more Tesla stock to cover the cash hole, the firm wrote.
Oppenheimer specifically cited Twitter’s decision last week to ban several journalists, including CNN’s Donie O’Sullivan, as a catalyst for the downgrade.
As CNN previously reported, Musk offered several journalists he banned from Twitter the option to return if they deleted the tweets he falsely claimed shared his “exact-real-time location.”
Rusch, the Oppenheimer analyst, said the “inconsistent standards application” for Twitter users has helped create a “broad public backlash” against Musk that will in turn hurt Tesla.
“We believe banning journalists without consistent defensible standards or clear communication in an environment where many people believe free speech is at risk is too much for a majority of consumers to continue supporting Mr. Musk/TSLA, particularly people ideologically aligned with climate change mitigation,” Rusch wrote.
In other words, Musk’s antics are bad for business, even the business of Tesla.
Ross Gerber, a shareholder in both Twitter and Tesla, said over the weekend that he hopes Musk finds a CEO for Twitter during the first quarter of 2023.
“I think it is in the best interest for Tesla shareholders for Elon to be back at Tesla working full time,” Gerber said on Twitter.