The SEC asks judge to hold Elon Musk in contempt for breaking deal

Image: REUTERS/Kyle Grillot
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The US Securities and Exchange Commission has asked a judge to hold Elon Musk in contempt for violating an agreement it brokered months ago seeking to rein in the Tesla CEO.

In a complaint filed in a Manhattan federal court on Feb. 25, the agency claims Musk broke its earlier deal by tweeting out an inaccurate estimate of future vehicle production. Musk claimed on Feb. 19 that Tesla would make about 500,000 cars this year. The CEO later backtracked noting that annualized production rate would be “probably around 500k,” but 2019 deliveries were still on track to reach 400,000 cars.

The SEC’s filing says that Tesla still does not have agreed disclosure controls or procedures in place. “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,” it stated. “Musk has not made a diligent or good faith effort to comply with” provisions to pre-approve his tweets.

The suit’s language suggests the SEC may not go as lightly on Musk this time. The agency’s last deal amounted to a slap on the wrist. Musk neither admitted nor denied the SEC’s charges, but accepted a (largely symbolic) $40 million civil fine that was split evenly between Tesla and its founder (Musk holds approximately $8 billion in shares in Tesla). He also stepped down as chairman of the board, and two new “independent” directors were also added.

The provision most directly aimed at Musk was the SEC’s requirement that Tesla “enhance controls with respect to Elon’s public communications regarding Tesla and to pre-approve any such written communications that contain, or reasonably could contain, information material to Tesla or its stockholders.”

That didn’t sit well with Musk who has continued antagonizing the US government’s primary securities regulator. Last October, Musk tweeted that “the Shortseller Enrichment Commission is doing incredible work. And the name change is so on point!” He told 60 Minutes in December that “I do not respect the SEC.

Now, Musk’s ability to serve as Tesla’s CEO is in jeopardy. That prospect has spooked investors, sending Tesla’s stock down more than 3% in after-hours trading. But it was easy to see this coming.

In last year’s 60 Minutes interview, Musk rejected the idea that all his tweets would have be subject to prior approval. Musk claimed only tweets that could affect Tesla’s stock price would be affected. When asked how Tesla lawyers could identify such tweets if they didn’t read them in advance, Musk shrugged. “I guess we might make some mistakes, who knows,” he said. “Nobody’s perfect.”