SEC wants Musk charged with contempt for tweet

Source: Xinhua | 2019-02-27

The US Securities and Exchange Commission is pursuing a contempt order against Tesla Inc Chief Executive Officer Elon Musk, saying he violated a fraud settlement by tweeting material information without pre-approval, sending the firm’s shares down 5 percent.

The SEC’s request potentially could reopen a turbulent chapter for the electric vehicle maker in which regulators last year accused Musk of fraud for making misleading tweets about plans to take the company private, and demanded that he be stripped of his CEO title.

Musk, Tesla and the SEC settled the lawsuit, and part of the settlement called for any material statements made by Musk on social media to be vetted in advance by the company.

In a court filing on Monday, the regulator pointed to a Musk February 19 tweet: “Tesla made 0 cars in 2011, but will make around 500k in 2019,” noting that Musk did not seek or receive pre-approval before publishing this tweet, which was inaccurate and disseminated to over 24 million people.

“Musk has thus violated the court’s final judgment by engaging in the very conduct that the pre-approval provision of the final judgment was designed to prevent,” the SEC wrote in its motion filed on Monday in federal court in Manhattan.

The motion asks the judge to issue an order that would put the onus on Musk to show why he should not be held in contempt for violating the settlement.

Musk corrected his tweet four hours later to say that the “annualized production rate” at year-end 2019 would probably be about 500,000, with deliveries expected to be about 400,000.

Tesla did not immediately respond to a request for comment, but Musk shot back on Twitter on Monday night, tweeting: “SEC forgot to read Tesla earnings transcript, which clearly states 350k to 500k. How embarrassing …”

Musk was referring to comments made by him in January to analysts that Tesla would make “maybe on the order of 350,000 to 500,000 Model 3s, something like that this year.”

Tesla and Musk agreed in September to pay US$20 million each to the SEC, and the billionaire stepped down as the company’s chairman but remained as chief executive. In the settlement, the agency pulled back from its original demand that Musk, who is synonymous with the Tesla brand, be barred from running Tesla, a sanction many investors said would be disastrous.

The settlement was approved in October by a US judge, who can now decide whether its terms have been violated.

Musk provoked the SEC even after the settlement was signed, calling the agency the “Shortseller Enrichment Commission” on Twitter in October.

In a December interview with “60 Minutes,” Musk said none of his tweets had been censored since the settlement, and that only those that could cause Tesla stock to move would need to be reviewed.

“I want to be clear. I do not have respect for the SEC,” he said, adding that he respected the justice system.

In its fourth-quarter shareholder letter, Tesla said that, barring unexpected challenges with the new Shanghai factory, Tesla targeted annualized Model 3 production of over 500,000 units sometime between the fourth quarter, and the second quarter of next year.

In a response to the SEC’s demand for information regarding the February 19 tweet, a lawyer for Tesla and Musk said the CEO’s tweet was meant to reiterate information already approved, then disseminated when the company released fourth-quarter earnings results in January.

Although the tweet was not pre-approved, the lawyer wrote, Musk believed its substance had been “appropriately vetted, pre-approved and publicly disseminated.”