Attorneys for the Securities and Exchange Commission on Monday blasted Tesla Inc. Chief Executive Elon Musk’s defense over whether he should be held in contempt of court, saying one of his main arguments “borders on the ridiculous.”
Last week, Musk said the SEC was overreaching and infringing on his free speech by seeking a contempt ruling over tweets he sent on Feb. 19. “Tesla made 0 cars in 2011, but will make around 500k in 2019,” Musk tweeted, before clarifying a few hours later: “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.”
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.
— Elon Musk (@elonmusk) February 20, 2019
The SEC claimed that violated an agreement from last fall, when Musk settled an SEC fraud investigation over another tweet. As part of that deal, Musk agreed that Tesla would have oversight and pre-approval over his tweets that are material to the company. He also agreed to pay a $20 million fine — Tesla was also fined $20 million — and gave up his seat as Tesla chairman.
Musk admitted he had not sought pre-approval for the Feb. 19 tweet. Or apparently any others.
In a court filing Monday, the SEC said it was “stunning” to learn that “Musk had not sought pre-approval for a single one of the numerous tweets about Tesla he published in the months since the court-ordered pre-approval policy went into effect.”
“Musk reads this court’s order as not requiring pre-approval unless Musk himself unilaterally decides his planned tweets are material,” the SEC said, arguing that Musk’s actions make the court order “meaningless.”
In the filing, the SEC dismissed every aspect of Musk’s defense, saying his explanations for the Feb. 19 tweet have changed over time, and ripped his argument that the tweet was not material.
“Musk’s contention — that the potential size of a car company’s production for the year could not reasonably be material — borders on the ridiculous,” the SEC said.
The SEC also shot down Musk’s claim that the number of cars had been previously mentioned in Tesla’s fourth-quarter earnings report. Prior to the Feb. 19 tweet, “Tesla had not publicly disclosed any forecast of the total number of vehicles it expected to produce in 2019,” the SEC said.
Musk had previously mentioned an annualized production rate of 500,000 vehicles, but as a more vague production target to reach sometime between late 2019 and early 2020, the SEC said: “On its face, the . . . tweet — which stated Tesla will make around 500,000 cars in 2019 — was materially different from Tesla’s production rate forecasts for Model 3.”
The SEC also said the court-agreed pre-approval requirement does not mean Musk cannot speak, so his free-speech argument has no basis — but even if it did, he had waived his First Amendment rights in the court settlement anyway.
Citing Musk’s “lack of judgement,” the SEC asked a federal judge to find Musk in contempt, and order “all necessary and appropriate relief to enforce its terms.”
It is unclear what measures the judge may take if Musk is found in contempt. Options could include, in theory, a Twitter ban for the voracious tweeter. But experts have told MarketWatch it is more likely that the judge could allow the SEC to pressure Tesla and its board of directors to further discipline him.
In a court filing Monday night, Musk’s attorney asked for permission to file a rebuttal to the SEC’s response by Friday, claiming it introduced new and “unsupported” assertions.
Tesla stock TSLA, -2.16% is down 19% year to date, compared to the S&P 500’s SPX, +0.37% 13% gain.
