Never tweet. That’s the thrust of a SEC action taken late Monday, when the US securities watchdog requested a federal judge hold Tesla CEO Elon Musk in contempt of court for a short series of tweets he posted last week.
The SEC’s request stems from a February 19 posting from the Twitter-loving CEO, who wrote, “Tesla made 0 cars in 2011, but will make around 500k in 2019.” About four and a half hours later, Musk corrected himself, tweeting: “Meant to say annualized production rate at the end of 2019 probably around 500k, i.e. 10k cars/week. Deliveries for the year estimated to be around 400k.”
A regular schmo making a blooper on Twitter might be no big deal. But Musk is the head of a publicly traded company, and, more critically, reached a $20 million settlement with the SEC over his tweeting just this past September. As part of that settlement, Tesla (which also paid a $20 million settlement for Musk’s over-share) agreed to set up a “pre-approval” process for all of its senior executives’ communications with shareholders, including tweets. (The settlement also barred Musk from his chairperson role for at least three years. It has since been filled by former Australian telecommunications executive Robyn Denholm.)
In court documents filed today, the SEC published a series of emails with Musk’s counsel, in which the electric carmaker’s lawyers admit the February 19 tweet “was not individually pre-approved”. Instead, the lawyers explain, Musk believed he was just reiterating projections first made public in Tesla’s fourth quarter earning report, published in late January. There, Tesla wrote that it was “targeting annualized Model 3 output in excess of 500,000 units sometime between Q4 of 2019 and Q2 of 2020.”
But the emails included in the SEC motion filed today also show that Musk’s initial tweet about vehicle production alarmed Tesla’s legal team. In an email response sent to the SEC on February 20, Tesla reported that when the lawyer in charge of monitoring Musk’s communications saw the initial tweet about vehicle production, he “immediately arranged to meet with Mr. Musk at the Fremont factory.” There, according to the email, Musk and the lawyer worked to draft the clarifying follow-up tweet. The email between Tesla and the SEC also notes that Musk’s initial tweet came “well outside NASDAQ trading hours.” (The market closes at 4pm Eastern Time; Musk sent the two tweets at 7:15pm and 11:41pm Eastern Time, respectively.)
What does it mean if Musk is held in contempt of court? The penalty would be up to the federal judge, says Peter Haveles, a trial lawyer with the law firm Pepper Hamilton. “If the SEC prevails, there is a good likelihood that the District Court will fine Mr. Musk and that it will put him on a short leash, with a strong warning that further violations could result in Mr. Musk being banned for some period of time as an officer or director of a public company,” he says.
Haveles also says that it appears the SEC has a strong case. “The SEC took the time to collect evidence from Tesla before filing its motion,” he says.
The settlement itself issues from a tweet Musk sent in August 2018, in which he wrote that he planned to take Tesla private and that he had “funding secured.” Musk soon acknowledged he had not in fact secured funding for the plan, and Tesla announced it would stay public. The stock price trampolined. In September, the SEC sued Musk and Tesla for “false and misleading statements”; the Musk and the company settled the lawsuit in two days later. Tesla is still facing a class action lawsuit filed in August by shareholders who say the “funding secured” tweet cost them money.
Musk has a long history of antipathy towards the SEC. In October, even after his settlement with the federal agency, Musk called it the “Shortseller Enrichment Commission” in a tweet. (Musk also has a long history of antipathy with those who short his company’s stock.)
And in December, Musk told CBS’ 60 Minutes that he doesn’t respect the SEC. He also said that the only tweets of his that would have to be reviewed were those that could move the company’s stock price. When the interviewer asked how Tesla could know which tweets would do that, Musk said, “Well, I guess we might make some mistakes. Who knows?” The exchange is cited in the SEC’s motion for a contempt charge, as evidence that “Musk has not made a diligent or good faith effort to comply” with the terms of his settlement.
In the hours after the SEC filed its motion, Musk took to—what else?—Twitter. “SEC forgot to read Tesla earnings transcript, which clearly states 350k to 500k. How embarrassing … 🤗,” he wrote. Tesla representatives did not reply to a request for comment.
Just last week, Tesla general counsel Dane Butswinkas left his position after just two months on the job. The well-respected trial lawyer had reportedly been hired to represent the company in its SEC dealings. Bloomberg reports that Butswinkas departed “due to a poor cultural fit at Tesla and the desire to return full-time to his trial practice.” As the legal wrangling continues, it seems his replacement, former Tesla vice president of legal Jonathan Chang, is having an interesting first few days at his new job.
Alex Davies contributed reporting.
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