NewsNational

Actions

SEC asks judge to hold Elon Musk in contempt after he tweeted incorrect information about Tesla

Posted: 8:45 AM, Feb 26, 2019
Updated: 2019-02-26 14:40:39Z
SEC asks judge to hold Elon Musk in contempt after he tweeted incorrect information about Tesla

The Securities and Exchange Commission has asked a federal judge to hold Tesla CEO Elon Musk in contempt for violating a settlement deal reached last year.

Musk tweeted on February 19 that "Tesla made 0 cars in 2011, but will make around 500k in 2019." Hours later, Musk sent a follow-up tweet indicating that the company will actually deliver just 400,000 cars this year.

Although Musk corrected his mistake, regulators scolded Tesla's billionaire CEO because he "once again published inaccurate and material information about Tesla to his over 24 million Twitter followers," according to court papers filed Monday. The SEC noted that he did not ask for or receive company approval before publishing his tweet.

His October 2018 settlement with the SEC mandates that he receive pre-approval of any social media posts with information that's "material" to shareholders. Tesla agreed to establish a board committee to oversee those posts.

In a court filing, Tesla conceded Musk did not receive pre-approval for his posts, but the company claimed that he didn't need it. Tesla said the language he used was based on information the company made public 20 days earlier during its January 30 earnings call with Wall Street analysts .

Musk tweeted Monday night that the SEC "forgot to read Tesla earnings transcript, which clearly states 350k to 500k. How embarrassing ..."

However, the settlement agreement stipulates that any edits to pre-approved language need to be approved again by Tesla's committee. And even if it were verbatim, Musk would have needed new approval, because pre-approval expires after two days.

Also, the SEC noted that the language Musk tweeted did not have pre-approval in the first place -- because it was wrong. Tesla had said by the end of the year it would produce an annualized rate of 500,000 cars -- not 500,000 vehicles total in 2019.

In Tesla's response to the SEC, the company said its designated securities lawyer met with Musk after seeing his February 19 tweet, and the two drafted the clarifying tweet.

The SEC said in court papers Monday that Musk had not "made a diligent or good faith effort" to comply with the settlement. The SEC's court filing Monday sent Tesla's stock down 3% in premarket trading Tuesday.

Tesla and Musk reached separate $20 million deals with the SEC last fall to settle securities fraud charges against the CEO. As part of the agreement, Musk was forced to step down as Tesla's chairman. He remained CEO.

If a court finds Musk violated the settlement, Musk could face fines of up to $1,000 per day from when the court issued the order until a court rules that he is in full compliance, according to Urska Velikonja, professor at at Georgetown University Law Center.

"He just keeps pushing the envelope," said Velikonja.

The SEC can't ban Musk from tweeting, but it can stop him from serving as CEO, according to Charles Elson, chair of the Weinberg Center for Corporate Governance at the University of Delaware.

"In other similar situations, CEOs at this point ... would have been terminated," he said, describing the SEC's latest action as "quite serious."

Elson pointed out that other companies "may end up in the same situation, and the SEC has to be consistent and firm on its enforcement of the disclosure requirements."

Musk initially got in trouble with regulators over a series of tweets last August about a potential transaction to take Tesla private. Musk said he had secured funding to take Tesla private at $420 a share, causing the company's stock to soar. But he had not secured the funding, according to the SEC.

Tesla and Musk's lawyers did not respond to requests for comment Monday.

Musk has publicly disparaged the settlement. In an an interview with CBS' "60 Minutes" in December, Musk said he didn't "respect" the SEC. He also claimed no one at the company was proofreading all his posts.

"The only tweets that would have to be ... reviewed would be if a tweet had a probability of causing a movement in the stock," he said. "Otherwise, it's — hello, First Amendment."

When asked how he could avoid moving markets if the company isn't reviewing all of his tweets, Musk said, "I guess we might make some mistakes. Who knows?" He added, "Nobody's perfect."

In its court filing Monday, the SEC pointed to the "60 Minutes" interview as evidence that Musk is "not serious" about the settlement agreement.