The Securities and Exchange Commission has asked a federal judge to hold Tesla CEO Elon Musk in contempt for sending out an inaccurate tweet, according to a court document filed today in the Southern District of New York.
According to SEC officials, Musk violated the rules of a settlement reached last fall regarding his use of Twitter to disclose financial information about the electric carmaker. As part of the settlement, Musk stepped down as chairman of the company, but remained its CEO. He also agreed to seek legal approval before tweeting anything that might materially impact Tesla, a stipulation of the deal Musk himself told 60 Minutes last December had not been implemented. Tesla didn’t respond to requests for comment.
Musk originally ran afoul of financial disclosure rules by tweeting that he secured funding to take Tesla private last August. The tweet in question today was posted on February 19th, in which Musk said Tesla would produce 500,000 cars this year. Tesla had officially guided investors that it would make 400,000 cars at most in 2019 just a few weeks earlier.
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.— Elon Musk (@elonmusk) February 20, 2019
According to the SEC, Musk allegedly did not seek approval for this tweet from Tesla’s legal counsel, as per the settlement guidelines. Three days after it was sent, the SEC confirmed with Telsa’s lawyers that no one had reviewed it.
Tesla’s lawyer worked with Musk to correct the original tweet in a follow-up, the SEC document says. But Musk’s initial projection still may be considered a violation because the information could be considered material to Tesla shareholders — and the lawyers didn’t see it before Musk sent it. Tesla’s general counsel left the company after just two months last week, just following the incident.
In a tweet sent after this article was published, Musk pointed to how he said Tesla might make 350,000 to 500,000 Model 3s this year on the company’s most recent investor call. “SEC forgot to read Tesla earnings transcript, which clearly states 350k to 500k,” he wrote. “How embarrassing …”
The SEC may have been looking for a slip-up from Musk, who has spent the last few months engaging in somewhat puzzling online antics. Since the settlement, the outspoken chief executive has used press interviews and his Twitter account to disparage the SEC publicly, telling 60 Minutes in the same interview in which he admitted to not letting anyone pre-approve his tweets that he doesn’t respect the agency and hand-picked his replacement for chairperson of Tesla’s board. In October, shortly after the settlement announcement, Musk referred to the agency on Twitter as the “Shortseller Enrichment Commission.”
Probably what will happen next will be a hearing, where a judge will hear arguments about whether Musk’s conduct violated the settlement, says Peter Haveles, a partner at Pepper Hamilton in New York whose practice deals with commercial and regulatory disputes. If the judge finds that Musk violated the agreement, Musk will likely be fined.
“Mr. Musk will try argue that it’s a one-time thing, and the issue will be, is that really the case?” Haveles says. “Will the SEC come forward with evidence from Tesla that they are struggling to get Mr. Musk to comply with the process?”
It’s unlikely that Musk will face being barred from serving as a director or officer of a publicly traded company for the tweet, Haveles says. And the tweet doesn’t rise to the level of criminal contempt, either, so Musk doesn’t have to worry about jail time.
As news of the SEC court filing began propagating on Twitter, Musk tweeted out a lighthearted meme.
Earlier this month, Twitter CEO Jack Dorsey said Musk was his “favorite” Twitter user for “sharing his thinking openly.”
US SEC tries to hold Elon M... by on Scribd
With reporting by Elizabeth Lopatto.
Update February 25th, 10:39PM ET: Added details about Musk’s tweet in response to the news.