Newsdeck

Newsdeck

Elon Musk Faces U.S. Contempt Claim for Violating SEC Accord

Elon Musk

The U.S. Securities and Exchange Commission asked a judge to hold Elon Musk in contempt for violating last year’s settlement with the agency, raising a new round of regulatory issues for the embattled Tesla Inc. CEO.

The SEC claimed on Monday that a Feb. 19 tweet by Musk violated the settlement when he wrote that “Tesla made 0 cars in 2011, but will make around 500k in 2019.” The deal with the agency required him to seek pre-approval from the company for social media posts and other written communication that would be material to the company or investors.

“He once again published inaccurate and material information about Tesla to his over 24 million Twitter followers, including members of the press, and made this inaccurate information available to anyone with Internet access,” the SEC said in court papers filed in Manhattan federal court.

Tesla shares plunged as much as 5.4 percent as of 6:30 p.m. Monday in New York. The stock was already down 10 percent this year through the close of regular trading.

The SEC’s move puts Musk in fresh legal peril, including the possibility that he’ll be barred from running Tesla or any other public company, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. A finding of contempt by the judge would prompt a new round of negotiations over penalties among the SEC, Tesla and Musk.

“Having your CEO in contempt of an SEC action is a pretty bad thing,” Elson said in a phone interview. “They settled with him and within a few months he’s back to doing similar things. It’s unbelievable.”

Calls to Tesla and emails to Musk and his representative weren’t immediately returned.

Brad Bennett, a former head of enforcement at the Financial Industry Regulatory Authority, who previously worked as an SEC enforcement attorney, said the agency was clearly bothered by Musk’s latest tweet.

“They have to view the conduct as akin to another violation of securities laws to take this step,” he said in an interview. “It’s a very novel situation where someone is running an enterprise with this kind of market cap and gives the SEC cause for concern that the person is not capable of following the securities laws.”

The earlier settlement grew out of a September lawsuit filed by the SEC claiming Musk misled investors when he tweeted he had funding secured to take the company private. The accord required Musk and the company to each pay a $20 million penalty and also removed him from serving as chairman for at least three years.

In its latest filing, the SEC said that after Musk sent an initial tweet at 7:15 p.m. Eastern time on Feb. 19, a company securities lawyer immediately set up a meeting with him to draft a correction. Musk tweeted the correction more than four hours later: “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”

The next day, Tesla announced that its general counsel was leaving, just two months after the company hired him.

U.S. District Judge Alison Nathan, who is handling the case, hasn’t scheduled a hearing to weigh the contempt request or set a date for Musk or Tesla to respond to the filing. The SEC seeks contempt only against Musk.

The case is SEC v. Musk, 18-cv-8865, U.S. District Court, Southern District of New York (Manhattan). DM

Gallery

Please peer review 3 community comments before your comment can be posted

We would like our readers to start paying for Daily Maverick...

…but we are not going to force you to. Over 10 million users come to us each month for the news. We have not put it behind a paywall because the truth should not be a luxury.

Instead we ask our readers who can afford to contribute, even a small amount each month, to do so.

If you appreciate it and want to see us keep going then please consider contributing whatever you can.

Support Daily Maverick→
Payment options

Daily Maverick Elections Toolbox

Feeling powerless in politics?

Equip yourself with the tools you need for an informed decision this election. Get the Elections Toolbox with shareable party manifesto guide.