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Elon Musk's tweets are a problem that court needs to address: lawyer for Tesla shareholder

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An Ohio pension fund is the latest party asking for a court to legally stop Tesla (TSLA) CEO Elon Musk from tweeting about the company.

The Laborers’ District Council & Contractors’ Pension Fund of Ohio (LDC&C), a Tesla shareholder, filed a suit seeking a permanent injunction barring Musk from using his personal Twitter account to disclose information concerning Tesla, and unspecified monetary damages. The Delaware court needs to expeditiously address what is a modern problem and unique to Tesla and Musk, said Michael Barry, a director at Grant & Eisenhofer, the plaintiff’s law firm.

“Mr. Musk’s 25-plus million followers gives him the ability to communicate instantaneously without any corporate review or a corporate pre-approval,” Barry said. “Unless he voluntarily submits and complies with the SEC’s orders. We're asking the Delaware court to enforce his fiduciary responsibility to the company and to the stockholders.”

Yahoo Finance did not receive an immediate response from Tesla concerning the lawsuit.

The U.S. Securities and Exchange Commission filed a motion last week asking a New York federal judge to hold Musk in contempt of court, based on a February 19 tweet that the SEC says violated the terms of a settlement agreement Musk reached with the Commission last year.

The tweet said:

The SEC’s settlement agreement requires any of Musk’s written projections, forecasts, or estimates regarding Tesla’s business to be pre-approved by certain company executives before they are published. Musk has until March 11 to respond.

“Musk has breached his fiduciary duty by continually violating court orders and the settlement agreement with the SEC by putting out tweets without pre-approval that are materially misleading,” Barry said. “The board has done nothing to rein him in and the SEC settlement obviously isn't enough.”

The plaintiffs are also asking that Tesla be enjoined from using Musk's personal Twitter account to release official company statements, Barry said, adding that the company’s November 2013 8K filing designates Musk’s personal Twitter account as an official source for company information.

For additional information, please follow Elon Musk’s and Tesla’s Twitter accounts: twitter.com/elonmusk and twitter.com/TeslaMotors,” the report states.

“Tesla has its own Twitter account,” said Barry, adding that use of Musk’s personal account was unnecessary.

Barry said other shareholder claims pending against Musk in Delaware federal and chancery courts seek monetary damages that are stayed pending the SEC proceedings.

‘Potentially billions of dollars’ for Tesla shareholders

Asked whether the pension fund plaintiffs will amend their complaint to plead monetary damages, Barry said, “It depends. We don’t know.” The LDC&C complaint is currently sealed and expected to be unsealed on Tuesday or Wednesday.

Elliot Lutzker, a former attorney with the SEC’s enforcement division and now a lawyer specializing in SEC compliance, said if the federal judge handling the SEC case sides with the SEC, the pension fund’s case could be bolstered.

“If he’s held in contempt … which he probably will be, then yes shareholders could bring a motion based on his failure to abide by the settlement,” Lutzker said. “Of course on the basis that he’s detrimental to shareholders.”

If monetary damages were eventually sought, Lutzker notes the dollar amount would likely far surpass the original $20 million in penalties Musk and Tesla both paid.

“You’re talking about potentially billions of dollars for a shareholder suit,” he said. “So they could recover a lot if they come down on him.”

“Certainly, Mr. Musk’s reckless tweeting habits have caused enormous damage to the company’s stock price,” Barry said.

Penalties from the latest suit aside, Lutzker posited that instead of an outright ban, the SEC could pursue a temporary suspension to try to reel in Musk’s tweeting yet again.

Alexis Keenan is a New York-based reporter for Yahoo Finance. Zack Guzman is the host of YFi PM and a senior writer for Yahoo Finance.

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