You are here

SEC asks judge to hold Elon Musk in contempt for violating settlement deal

New York

THE Securities and Exchange Commission on Monday asked a federal judge to hold Tesla CEO Elon Musk in contempt for violating the terms of a recent settlement agreement, rekindling tensions between the celebrity billionaire and federal regulators.

The SEC accused Musk of breaking a deal to seek preapproval of any potentially market-moving tweets about the car company when he tweeted on Feb 19 that Tesla would make around 500,000 cars this year. Four hours later, he tweeted that he "meant to say" the cars' weekly production rate would equal up to about 500,000 on an annual basis but that the total car deliveries this year would be closer to 400,000.

The next day, the SEC asked the company whether the tweets had been reviewed before being published, a requirement of a settlement agreement that Mr Musk agreed to late last year. The first tweet had not been preapproved, the company said. Instead, Tesla's attorneys saw the tweet after it was published and then reached out to Mr Musk to draft a second, corrective tweet, the SEC said in a motion filed in the US Southern District Court.

sentifi.com

Market voices on:

"As a result of his failure to comply with the (settlement, Mr Musk) once again published inaccurate and material information about Tesla to his over 24 million Twitter followers," the SEC said.

Tesla did not respond to requests for comment. But Mr Musk had his own message. Shortly after the SEC movement was announced, he tweeted a surreal meme and a short statement: "Oh hi lol."

The SEC's motion is the latest escalation in the battle between one of the country's most powerful regulators and the eccentric billionaire. Mr Musk has openly taunted the SEC, calling it the "Shortseller Enrichment Commission." The SEC did not ask for a specific punishment for Mr Musk's alleged violations of the settlement, but legal experts said the consequences for Mr Musk could be severe.

"No other CEO would have survived this," said Charles Elson, director of a corporate-governance center at the University of Delaware. "At some point, you can be the most brilliant person on earth, but you're still subject to the same laws and the same requirements as everyone else."

The SEC's motion could throw the electric-carmaker into chaos, at a time when it is under pressure to repay hundreds of millions of dollars of loans due in the coming months. It also turns up the heat on the SEC to prove it can crack down on the renegade style of rule-breaking that Mr Musk has popularised as a celebrity corporate chief.

Last September, Mr Musk reached a US$20 million settlement with the SEC, which had accused him of lying to investors when he tweeted that he had "funding secured" to take Tesla private. As part of the settlement, Tesla agreed to review Mr Musk's market-moving tweets and public statements before he published them.

According to the SEC, Mr Musk appears to have never been serious about complying with the agreement. During a December interview on 60 Minutes, journalist Lesley Stahl asked Mr Musk whether any of his tweets had been preapproved since the settlement. Mr Musk said they hadn't been.

Ms Stahl then asked how Tesla knew whether his tweets could move the company's stock price. "Well, I guess we might make some mistakes. Who knows?" Mr Musk responded.

That interaction shows that Mr Musk didn't plan to comply with the settlement, the SEC alleged.

"Musk's tweets have been reviewed after their publication, but there is no suggestion that Musk has sought or obtained pre-approval of any tweet prior to publishing it," the SEC said. WP