Elon Musk has once again gone and poked the hovering bear that is the Securities and Exchange Commission.
The Commission is asking a federal judge to decide whether Musk, founder and CEO of the electric car company Tesla, violated the terms of a recent consent agreement and should be held in contempt of court.
The SEC’s Feb. 25 filing, in U.S. District Court for the Southern District of New York, states that Musk should be “held in contempt for violating the clear and unambiguous terms of the Court’s Oct. 16 final judgment.”
At the heart of the initial controversy was an Aug. 7 Twitter post by Musk: “Am considering taking Tesla private at $420. Funding secured.”
“In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source,” the SEC later wrote of the tweet, alleging that the statement “funding secured” was “false and misleading.”
In October, after weeks of negotiating, Musk and Tesla reached a settlement with the SEC over those allegations. The deal includes a diminished role for Musk (a three-year ban as chairman of the Tesla board), safeguards to keep his public-facing commentary in check, and a more independent oversight role for the board of directors. Musk and Tesla were each fined $20 million.
Tesla also agreed to demonstrate greater scrutiny of all public-facing communications, including, but not limited to, Musk’s posts on social media, the company’s website, press releases, and investor calls. The final settlement demanded “pre-approval of any such written communications that contain, or reasonably could contain, information material to the company or its shareholders.”
That “pre-approval” proviso seems to have been all but ignored when Musk once again drew the ire of the SEC with a recent tweet.
“Tesla made 0 cars in 2011, but will make around 500k in 2019,” Musk wrote on Feb. 19.
A day later he added, in a comment appended to that post: “Meant to say annualized production rate at end of 2019 probably around 500k, i.e. 10k cars/week. Deliveries for year still estimated to be about 400k.”
The same day the mea culpa was published, Tesla General Counsel Dane Butswinkas announced he was leaving his post.
In its new court filing, the SEC wrote that it required pre-approval of any written communications as a term of its settlement “to prevent Musk from recklessly disseminating false or inaccurate information about Tesla in the future.”
Musk, it says, did not seek or receive pre-approval prior to publishing the Feb. 19 tweet, “which was inaccurate and disseminated to over 24 million people, including members of the press.”
“[He] has thus violated the Court’s final judgment by engaging in the very conduct that the pre-approval provision was designed to prevent,” the Commission added.
On Feb. 20, SEC staff asked Musk and Tesla to confirm whether Musk had complied with those pre-approval procedures. Legal counsel confirmed that the tweet had not been pre-approved.
According to that correspondence, counsel, immediately upon seeing Musk’s tweet for the first time, arranged to meet with him to draft the appended acknowledgement that the original tweet was not accurate.
“It is clear that the information in Musk’s tweet—a statement of the number of cars Tesla would make in 2019—was at least reasonably likely to be material to Tesla and its shareholders and therefore required to be pre-approved," the SEC wrote. “Musk’s failure to comply with Tesla’s policy, and thus the Court’s final judgment, was not a result of a lack of clarity.”
When confronted by the SEC, Musk claimed that he did not believe that he needed to seek and obtain pre-approval for the tweet “because he thought he was simply recapitulating information that had already been pre-approved in connection with two Tesla communications that took place 20 days earlier, on Jan. 30,” the Commission added.
Was the latest tweet just an isolated mistake? The SEC argues it was not.
“Musk has not made a diligent or good faith effort to comply with the provisions” of the settlement, it says. Less than two months after the Court finalized the deal, “Musk publicly indicated that he was not serious about compliance with [the pre-approval] provision.”
On Oct. 4, Musk tweeted: “Just want to that the Shortseller Enrichment Commission is doing incredible work. And the name change is so on point!”
On Dec. 9, the news program “60 Minutes” aired an interview with Musk by reporter Lesley Stahl that had taken place the previous week. During the interview, she asked about the oversight of his tweets.
Stahl: “Have you had any of your tweets censored since the settlement?”
Stahl: “None? Does someone have to read them before they go out?”
Stahl: “So your tweets are not supervised?”
Musk: “The only tweets that would have to be say reviewed would be if a tweet had a probability of causing a movement in the stock.”
Stahl: “And that’s it?”
Musk: “Yeah, I mean otherwise it’s, ‘Hello, First Amendment.’ Like Freedom of Speech is fundamental.”
Stahl: “But how do they know if it’s going to move the market if they’re not reading all of them before you send them?”
Musk: “Well, I guess we might make some mistakes. Who knows?”
Stahl: “Are you serious?”
Musk: “Nobody’s perfect.”
Musk later added: “I want to be clear. I do not respect the SEC. I do not respect them.”
Even after the SEC urged that Musk be held in contempt, his tweeting continued unabashedly. A Twitter follower opined of the criticized post: “But it didn’t move the markets and the SEC complaint did. Where is the enforcement committee that protects the small investor from the SEC Enforcement committee?”
“Exactly. This has now happened several times. Something is broken with SEC oversight,” Musk responded.