SEC pushes court to hold Elon Musk in contempt over Tesla tweets
Tesla CEO Elon Musk is in blatant violation of a settlement agreement reached last year over securities fraud allegations, the U.S. Securities and Exchange Commission said in a biting response to the court that argued the billionaire entrepreneur be held in contempt.
The response, which was filed late Monday, is the latest salvo in the agency’s fight with Musk that was sparked by the now infamous “funding secured” tweet. The SEC filed a complaint in federal district court in September alleging that Musk lied when he tweeted on August 7 that he had “funding secured” for a private takeover of the company at $420 per share.
Musk and Tesla settled with the SEC without admitting wrongdoing. Tesla agreed to pay a $20 million fine; Musk had to agree to step down as Tesla chairman for a period of at least three years; the company had to appoint two independent directors to the board; and Tesla was also told to put in place a way to monitor Musk’s statements to the public about the company, including via Twitter.
It’s that final point about Musk’s use of Twitter that has raised the SEC’s hackles. Last month, the SEC asked a judge to hold Musk in contempt for violating the settlement agreement. The SEC argued that a tweet sent by Musk on February 19 violated their agreement. Musk is supposed to get approval from Tesla’s board before communicating potentially material information to investors.
Musk tweeted Feb. 19 that Tesla would produce “around” 500,000 cars this year, correcting himself hours later to clarify that he meant the company would be producing at an annualized rate of 500,000 vehicles by year end.
The next morning, Tesla announced that its general counsel, Dane Butswinkas, was leaving after just months on the job. Butswinkas said in a statement that he was “grateful for the opportunity” to work with Musk and Tesla and that he plans to return to the Washington, D.C. law firm for which he previously worked 30 years.
The SEC said in this latest response that it was stunned to discover that Musk had not sought pre-approval for a single one his tweets about Tesla.
The Court-ordered pre-approval requirement for Musk’s written communications lies at the heart of the settlement. Musk’s unchecked and misleading tweets about Tesla are what precipitated the SEC’s charges, and the pre-approval requirement was designed to protect against reckless conduct by Musk going forward.
It is therefore stunning to learn that, at the time of filing of the instant motion, 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.
Many of these tweets were about the topics specifically identified by Tesla in its own policies as potentially material to shareholders. Musk reads this Court’s order as not requiring pre-approval unless Musk himself unilaterally decides his planned tweets are material. His interpretation is inconsistent with the plain terms of this Court’s order and renders its pre- approval requirement meaningless.
Musk has argued that the Feb 19 tweet was “immaterial” and complied with the settlement. He also said the SEC’s effort to find him in contempt infringed on the First Amendment and his right to free speech. The SEC has rejected that argument. “Submitting his written statements for pre-approval does not, as Musk baldly asserts, mean that he is prohibited from speaking,” the SEC wrote in its reply to Musk’s order to show cause.
The SEC told a judge Monday that Musk has regularly published substantive information about Tesla and its business in tweets, beyond the February 19 instance. The SEC pointed to tweets about Tesla vehicle tax credits and pricing, vehicle maintenance costs, plans for expansion of charging stations internationally, the EPA rating of Tesla vehicles, construction and production plans for a new Shanghai factory, and the results of government safety testing of Tesla vehicles as evidence of Musk’s non compliance.
You can read the entire filing here.