Musk faces US contempt claim for violating accord with SEC

Elon Musk left OpenAI on disagreements about company pathway. (Bloomberg pic)

NEW YORK: Elon Musk is facing a new round of regulatory trouble for tweets about Tesla, raising fresh concerns about the billionaire CEO’s ability to keep his impulses in check and responsibly run a public company.

The US Securities and Exchange Commission on Monday asked a judge to hold Musk in contempt for violating a settlement that required him to get Tesla approval for social media posts and other writings that could be material to investors.

He breached that deal with a Feb 19 tweet that said Tesla would make about half a million cars in 2019, the agency claims. The CEO posted a few hours later that deliveries would only reach about 400,000.

The SEC’s move puts Musk in fresh legal peril less than five months after he settled claims that he misled the public with tweets about taking the electric-car maker private.

He could face a variety of penalties, with the stiffest being that he’ll be barred from running Tesla or any other public company for a period of time, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

“Having your CEO in contempt of an SEC action is a pretty bad thing,” Elson said in a phone interview. “They settled with him and within a few months, he’s back to doing similar things. It’s unbelievable.”

‘Inaccurate’ information

The SEC alleged Monday that Musk “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,” according to court papers filed in Manhattan federal court.

The tweet said, “Tesla made 0 cars in 2011, but will make around 500k in 2019.” Later, Musk clarified to say the company’s annualised production rate at end of the year would probably be around 500,000.

The next day, Tesla announced that its general counsel was leaving, just two months after the company hired him.

The SEC “has to view the conduct as akin to another violation of securities laws to take this step,” said Brad Bennett, a former SEC enforcement attorney.

“It’s a very novel situation where someone is running an enterprise with this kind of market cap and gives the SEC cause for concern that the person is not capable of following the securities laws.”

In its defence, Tesla lawyers said Musk was trying to “recapitulate” a pre-approved statement from the company’s earnings call stating that the company would get production to 10,000 vehicles a week by the end of the year, according to the attorneys’ Feb 22 letter to the SEC included in court filings Monday.

Tesla attorneys stressed that the company and Musk take their settlement with the SEC seriously.

Since agreeing to the settlement, Musk has antagonised Wall Street’s main regulator. A few days after the Sep 29 agreement, he dubbed the SEC as the “Shortseller Enrichment Commission” in a tweet. In December, Musk told Lesley Stahl of “60 Minutes” that he didn’t respect the agency.

“It’s very clear that the SEC is not happy with Musk,” said Stephen Diamond, an associate professor of law at Santa Clara University who specialises in corporate governance. “Musk is on a self-destructive path. He’s the controlling stockholder but he’s not respecting the rights of other shareholders.”