SEC Prepping Response to Musk Over Tweet Dispute

Tesla CEO claims agency wants to restrict his 1st Amendment rights.

by on Mar.13, 2019

Tesla CEO Elon Musk emphasized his distaste for the SEC during an interview on "60 Minutes."

A federal judge has given the SEC permission to fire the next shot in an ongoing battle that could determine not only whether Tesla CEO Elon Musk can continue tweeting about company business but whether he may face new penalties for allegedly violating terms of a fraud settlement.

The Securities and Exchange Commission accused Musk of improperly publishing a tweet on February 19th outlining Tesla’s 2019 production plans. In technical terms, the agency referred to it as a “material” statement, one that could impact the company’s stock price. Musk later revised the tweet and then asserted that the information had been previously announced, anyway.

Beyond the Headlines!

The latest in an ongoing battle between securities regulators and the 47-year-old executive could have a significant impact if the courts agree with the SEC that last month’s tweet violated an agreement aimed at settling the fraud settlement stemming from Musk’s proposed plan to take Tesla private. He not only paid a fine but agreed to run material comments by the automaker’s legal team before posting them. As part of last year’s settlement, Musk was forced to relinquish his position as Tesla chairman. He could now face penalties including his removal from the CEO’s job, as well.

(Tesla reverses position – will keep some stores open. Click Here for the latest.)

The South African-born executive is a regular user of social media, blogging as well as posting to his 24 million Twitter followers. On February 19 he tweeted, “Tesla made 0 cars in 2011, but will make around 500k in 2019.”

The SEC alleges that the post violated terms of the September 2018 agreement settling charges that Musk committed fraud by claiming there was a deal to take Tesla private at $420 a share, with funding backed by the Saudi Arabian sovereign investment fund.

This week, the Tesla CEO’s lawyers countered by pointing to a regulatory filing Tesla made in January that, in part, noted, “we are targeting annualized Model 3 output in excess of 500,000 units sometime between Q4 of 2019 and Q2 of 2020.” Musk also told analysts on reporters participating in a late January earnings call that with a new Shanghai plant coming on line later this year, Tesla could get “very close” to an overall production rate of 10,000 vehicles a week “by the end of the year.”

(Tesla ready to reveal Model Y, pickup later this year. Click Here for the story.)

With those two statements on the record, Musk had the right to talk about production plans in social media, the attorneys argued, accusing the SEC of trying to violate the executive’s free speech rights.

“As the SEC interprets and seeks to enforce it, the Order’s injunction is a de facto gag on a broad spectrum of statements implicating Tesla,” the lawyers wrote in their court filing, accusing the agency of an “unconstitutional power grab.”

With the combination in plants in the U.S. and China, Tesla hopes to be producing around 10,000 vehicles weekly by late 2019.

Observers have pointed out that there are some differences, however, between what was in last month’s tweet and what was earlier noted by Musk and Tesla in the regulatory filing and conference call. The company’s earlier position indicated it planned to be operating at an annualized pace equivalent to as much as 500,000 vehicles, but not until late in 2019. Musk’s February 19 post could be seen as indicating a roughly 500,000 vehicle production target for the full year.

The SEC is asking U.S. District Judge Alison Nathan to hold Musk in contempt of the 2018 settlement. The jurist has now authorized the agency to respond with its own brief by March 19. The two sides will then have another week to request an evidentiary hearing.

What happens next is unclear, though Musk could be fined, if found in contempt, or even forced out as Tesla chief executive. He is currently barred from regaining his post as chairman until September 2021.

The executive, who also runs the rocket launching company SpaceX, has never been shy when it comes to taking on the SEC, however, an agency he has belittled as the “Shortseller Enrichment Commission,” a reference to the investors who have bet against the company’s success.

During a December interview on the TV newsmagazine “60 Minutes,” Musk declared, “I want to be clear. I do not respect the SEC. I do not respect them.”

That comment might have been ignored but for the fact that Musk also confirmed that his Twitter posts were not being screened by Tesla. Asked if that could cause problems, he added, “Well, I guess we might make some mistakes. Who knows?”

(Trump wants to kill all EV tax credits. Click Here for the story.)

The battle with the SEC is just one of Musk’s current problems. He is also under investigation by the U.S. military after smoking marijuana on a podcast last year. And he is being sued by a British diver involved in the rescue of a youth soccer team from a flooded Thai cave after Musk referred to him as a pedophile.

 

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