Page:Letter by Elizabeth Warren to the Securities and Exchange Commission requesting an investigation of Tesla, Inc.pdf/8

 : '''3. Potential Violations of SEC Rules Regarding Disclosure of Related Party Transactions'''

The actions of Mr. Musk and the Board since his takeover of Twitter also raise questions about whether the Board has disclosed sufficient details as required by law about related party transactions between Board members and Mr. Musk and his other ventures. As noted above, Mr. Musk used “more than 50 of his trusted Tesla employees” to work on his Twitter takeover, including Tesla’s Chief Information Officer and several senior staff. It is of paramount importance to Tesla shareholders that the Board properly disclose the details of these transactions and ensure that they provide sufficient benefit to Tesla, including a calculation of the full costs – including the costs to Tesla of distracted employees – that they have incurred.

If the Board members were not aware of this use of Tesla resources, it would represent a failure of corporate oversight. If they were aware, it represents a failure to disclose information relevant to investors. Item 404 of Regulation S-K requires public companies to disclose any transactions involving the company where “the amount involved exceeds $120,000, and in which any related person had or will have a direct or indirect material interest.” The company must provide details of the transaction, including any other information “that is material to investors in light of the circumstances.” Though the dollar value of Mr. Musk’s use of Tesla employees for his takeover of Twitter remains unknown, it is likely – given that it included dozens of employees – that it exceeded $120,000. But Tesla has not clearly disclosed – or not disclosed at all – the details of these transactions in its filings with the SEC. The company stated in its May 2023 proxy statement that “Twitter is party to certain commercial and support agreements with Tesla. Under these agreements, Twitter incurred expenses of approximately $1.0 million in the aggregate in 2022 and $0.4 million in 2023 through February.” It is not clear what this disclosure refers to or what it means.


 * 4. Potential Violations of SEC Rule 10b-5 Regarding Code of Ethics

Rule 10b-5 makes it “unlawful for any person, directly or indirectly, … [t]o make any untrue statement of a material fact … in connection with the purchase or sale of any security.” This applies to “any information released to the public.” Item 406 of Regulation S-K requires the disclosure of any code of ethics adopted by the company that applies to its CEO, which must be