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SEC wants Tesla CEO Elon Musk held in contempt for tweeting

Published:Wednesday | February 27, 2019 | 12:00 AM

Tesla CEO Elon Musk’s tweeting habits have triggered another legal challenge from stock market regulators worried about him using his Twitter account to mislead investors.

The latest dust-up emerged late Monday when the US Securities and Exchange Commission, SEC, asked a federal court in New York to hold Musk in contempt for violating a US$40-million settlement he begrudgingly reached with the US stock market’s chief regulatory agency five months ago.

Allegations that Musk broke the agreement by tweeting without company approval could renew a debate about whether he has become too reckless to continue as Tesla’s CEO. That cloud has been hanging over Tesla, even though many analysts still consider Musk’s vision to be an indispensable part of the electric carmaker he co-founded in 2003.

Contempt charges are typically brought against individuals who defy a court order. The SEC settlement was approved by a judge last fall, exposing Musk to potential fines or even jail time if he is found to be in contempt.

“He is looking like a repeat offender and a bad actor,” said Carl Tobias, a law professor at the University of Richmond. “The SEC is taking action because it has a responsibility to protect the interests of consumers, investors and the public.”

Tesla did not immediately respond to requests for comment about the SEC’s latest move. But letters from the company’s attorneys, included in Monday’s filing, argue that Musk remains in compliance with the settlement.

The SEC had sued Musk last September for using his Twitter account in August to announce he had secured financing for a potential buyout of Tesla – news that caused the company’s stock to swing wildly. He later backed off that buyout idea, but regulators concluded he never had lined up the money to pull off the deal that probably would have required at least US$25 billion to pull off.

Musk initially contended that he had done nothing wrong, before reluctantly agreeing to have future tweets that could affect Tesla’s stock be preapproved.

Now the SEC is alleging that Musk broke the terms of that agreement with a February 19 tweet projecting that Tesla would make about 500,000 cars this year. About 4½ hours after that tweet, Musk corrected his statement , saying he meant that Tesla had started to manufacture cars at a weekly clip that would translate into 500,000 cars during a year-long period, but not necessarily for calendar 2019.

Musk acknowledged he did not get company approval for the initial February 19 tweet, according to the SEC, even though car manufacturing statistics can affect stock prices of automakers. In his defence, Musk said he didn’t think his tweet needed clearance because he was basing it on information that had been disclosed in late January. Both February 19 tweets occurred while the US stock market was closed. Tesla’s stock rose by just US$1.10, or less than one per cent, the next day.

But those factors evidently didn’t sway the SEC, which illustrated Musk’s allegedly contemptuous behaviour with some of the comments he made during a television interview with ‘60 Minutes’ that aired December 9.

In that interview, Musk revealed that no one at Tesla was screening the tweets he posts to his account, which now has 25 million followers. When pressed how Tesla officials could know whether his tweets might be violating the SEC settlement if they weren’t readying them before they were posted, Musk replied: “Well, I guess we might make some mistakes. Who knows?”

The SEC also pointed out that during the same interview, Musk declared: “I want to be clear. I do not respect the SEC. I do not respect them.”

Tesla’s legal team realised Musk may have crossed a line with his February 19 tweet about car manufacturing, according to the SEC. After that tweet posted, a Tesla lawyer “immediately arranged to meet with Musk and draft the corrective statement that Musk tweeted out over four hours later”.