In defiance of an October settlement with the US Securities and Exchange Commission, Elon Musk did not have his tweets pre-approved by an official Tesla babysitter, the SEC says in newly filed court documents.
In a filing submitted Monday evening, lawyers for the federal agency wrote it was “stunning to learn” that “Musk had not sought pre-approval for a single one of the numerous tweets about Tesla he published in the months since the Court-ordered pre-approval policy went into effect.” (The SEC lawyers also complained in the filing that “it took more than two weeks for Musk and Tesla to concede as much.”)
The dispute dates back to August 2018, when Musk tweeted that he had “funding secured” for a plan to take Tesla private. (The electric vehicle company has traded publicly since 2010.) It turned out that was not entirely true—something the SEC objected to, given that Musk was the CEO and chair of a publicly traded company. The agency sued, and by late September, the parties had reached a settlement: Musk and Tesla would each pay a $20 million fine, Musk would step down as chairperson for at least three years (though would remain CEO), and Tesla would have its lawyers “pre-approve” any of its execs’ written communications “that contain, or reasonably could contain, information material to the Company or its shareholders.”
Then, on February 19, Musk—who often uses Twitter to discuss Tesla and engage with fans and critics alike—tweeted that Tesla “will make around 500K” cars in 2019. According to communications between Tesla and SEC lawyers that were later submitted to the court, this set off a minor kerfuffle inside the electric car company’s Fremont, California, factory, with the company’s “Designated Securities Counsel”—ie, its official Twitter babysitter—”immediately arranging” to meet Musk there. Together, according to court documents, they drafted an update, which Musk tweeted out about four-and-a-half hours later.
That correction was not enough for the SEC, which asked Judge Alison Nathan of the Southern District Court of New York to hold Musk in contempt for failing to hold up his side of the settlement. If Nathan does so, she would decide the penalty. “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,” Peter Haveles, a trial lawyer with the law firm Pepper Hamilton, told WIRED last month.
In court filings submitted last week, Musk’s legal team argued that the information the CEO tweeted in February wasn’t at all new—which means it didn’t fall under the purview of the settlement. While Tesla’s fourth quarter update said the company expected to deliver 360,000 to 400,000 vehicles in 2019, Musk told an analyst on the quarterly earnings call that Tesla would “produce maybe on the order of 350,000 to 500,000 Model 3s, something like that this year.”
But the SEC’s new filing seeks to draw a distinction between that statement—what it calls a “cryptic reference” that, it notes, confused some analysts—and the company's official guidance submitted to shareholders. It argues Musk should have gotten approval before disseminating that information, even by tweet, because it was new.
The SEC filing also addresses the Musk legal team’s contention that its enforcement of the settlement is a violation of the CEO’s First Amendment right to free speech. Tesla, not the SEC, would be the party reviewing Musk’s communications for truthfulness, the SEC argues. So “no First Amendment concern exists given that Musk’s speech is to be reviewed by … a private actor, and not the government.”
The SEC, at least, seems to think this court filing is convincing enough to put the whole situation to bed. “The SEC respectfully submits that, because there appears to be no disputed issues of material fact, an evidentiary hearing is unnecessary,” the lawyers write in Monday night’s filing. In other words: We win . Tesla did not immediately respond to comment, but expect its legal team to disagree.
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