SEC asks judge to hold Elon Musk in contempt over misleading tweets [Update]

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Elon Musk with Tesla

The U.S. Securities and Exchange Commission (SEC) has asked the federal judge from its case against Tesla CEO Elon Musk to hold him in contempt after one of his tweets allegedly broke the terms of his prior settlement with the agency.

The tweet in question, which was sent from Musk’s Twitter account on February 19th, says, “Tesla made 0 cars in 2011, but will make around 500k in 2019.”

Musk later followed up the tweet with a clarification that stated: “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 terms of Musk’s prior settlement left him stripped of his chairman position on the Tesla board, a $20 million USD (roughly, $26.3 million CAD) fine and ruled that his tweets needed to be pre-approved by an oversight board committee, according to CNN. The exact wording of the pre-approved tweets rule states: “implement mandatory procedures and controls to oversee all of Elon Musk’s communications regarding the Company made in any format,” according to Wired.

This leads us to Musk’s tweets on February 19th. The SEC is alleging that he didn’t have any oversight or approval when he tweeted that Tesla will make 500,000 cars in 2019, or any tweets since the settlement.

The case against Musk seems strong since he backed up the February 19th tweet with the second more specific tweet that seems like it came from someone in the company’s legal department. On a possibly related note, Tesla’s general law counsel Dane Butswinkas resigned the day after the tweet in question was sent out, according to Bloomberg

Now that the SEC thinks Musk isn’t playing by the rules of the settlement, it’s asked the judge in its case against the CEO to hold him in contempt.

This is the latest event in a long-running battle between Musk and the SEC. In August 2018, the SEC sued Musk over tweets he issued about taking Tesla private.

Since then, Musk and Tesla have each separately settled with the SEC for $20 million USD (roughly $26.3 million CAD) and agreed to additional restrictions. That said, now that the SEC has filed for the court to hold Musk in contempt, the terms of the settlement may be back up in the air.

The court filing by the SEC requesting that Musk be held in contempt states “courts have inherent power to enforce compliance with their lawful orders through civil contempt. This power serves to protect the due and orderly administration of justice and [to] maintain the authority and dignity of the court. Moreover, the purpose of civil contempt, broadly stated, is to compel a reluctant party to do what a court requires of him.”

This means that the lawsuit implies that the SEC is looking for the judge to re-rule the settlement with more restrictions or a stronger set of rules regarding Musk’s tweets.

Update 02/26/2019: The judge has ordered Musk to explain by March 11th why he should not be held in contempt for violating his agreement with the SEC, reports Reuters UK.

This reaction is spurred by the SEC asking Federal Judge Alison Nathan in Manhattan, New York, to hold Musk in contempt for not following the rules of his settlement, according to Reuters UK.

Update 02/26/2019 1:06 PM: Musk has responded to another Twitter user and said, “exactly. This has now happened several times. Something is broken with SEC oversight.”

The Twitter thread began when a user asked Musk and her followers if they thought the SEC has any bias. One of the responses notices that while Musk’s tweet from February 19th didn’t move markets, but the SEC asking the judge to hold Musk in contempt did.

Then Musk replied and stated his frustration with the U.S. federal agency, which might not be the best thing to publicize while he has to convince a judge not to hold him in contempt.

Source: CNBC, Wired, CNN, Reuters UK