Tesla failed to appoint a lawyer who could stop Elon Musk's 'erratic' tweets, a lawsuit filed by an investor alleges

• A lawsuit against Tesla says the company lacked an independent general counsel to challenge CEO Elon Musk.
• It alleges Musk appointed lawyers who would protect him and enabled his "erratic" tweets to continue.
• Tesla went through three general counsels in 2019, the lawsuit says.

Elon Musk was able to post "erratic" tweets about Tesla that led to government investigations because the company's board failed to control its CEO, a lawsuit by a Tesla investor alleges.

The board had "consistently failed" to appoint an independent general counsel, investor Chase Gharrity said in his lawsuit. The company lost three general counsels in 2019, he added.

The lawsuit against both Musk and the board focuses on how Musk's comments on Twitter allegedly violated a 2018 settlement with the Securities and Exchange Commission (SEC), which removed him from the company's board and stipulated his tweets should be approved in advance by the company.

Complimentary Tech Event

Transform talent with learning that works

Capability development is critical for businesses who want to push the envelope of innovation.Discover how business leaders are strategizing around building talent capabilities and empowering employee transformation.Know More

Musk's violations allegedly cost the electric-vehicle company "billions of dollars in market capitalization," Insider's Natasha Dailey reported.

Tesla's board should have applied tighter internal controls, including an independent general counsel who could provide advice "untainted by Musk," the lawsuit says.

Read more: The true disrupter in the auto industry isn't Tesla - it's Fisker

The general counsel directs the company's legal and policy teams and reports directly to Musk, and is supposed to provide advice on what is in Tesla's best interest but "Musk has always sought to appoint a General Counsel that would protect his interests first and those of Tesla second," the lawsuit says.

ABA Journal first reported on the news.

Tesla lost three general counsels in 2019

The lawsuit says that the company lost three general counsels between January and December 2019 because "none of them were able to exercise any independent advice on matters that differed from Musk's desired outcome."

It alleges that they were "either too close to Musk or felt they could not do their job due to interference from Musk."

One of them held the position for only two months, and resigned in February 2019, the day after Musk tweeted that "Tesla made 0 cars in 2011, but will make around 500k in 2019," according to the lawsuit.

Statements like this that forecast the company's production milestones have to be pre-approved, according to the terms of the SEC deal.

But counsel for Tesla confirmed that Musk's tweet had not been pre-approved, and Musk later posted a new tweet saying: "Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week. Deliveries for year still estimated to be about 400k."

In December 2018, Tesla appointed Robyn Denholm, then-CFO of Australia's largest telecoms firm Telstra, as chair of its board after Musk had to step down as part of his deal with the SEC.

But the lawsuit alleges that Denholm is "indebted" to Musk, and "has failed to curtail Musk's wrongful conduct."

The lawsuit refers to a CBS interview from December 2018, where Musk said he "handpicked" Denholm to succeed him as chair of the board.

He also said in that interview that he remained the company's largest shareholder, "and I can just call for a shareholder vote and get anything done that I want."

The lawsuit alleges that the board was "well aware that Musk was interfering with the General Counsel and dictating Tesla's positions on issues."

By not taking action to ensure that Tesla has an independent general counsel, the board breached its duty of loyalty, the lawsuit alleges.

Tesla did not immediately respond to Insider's request for comment.