Judge Delivers Musk, SEC an Ultimatum

Treating Tesla CEO Elon Musk and the U.S. Securities and Exchange Commission like a pair of squabbling kindergarteners, a federal judge handed down a message to both on Thursday. Basically, figure out your shit.

The two sides remain locked in a battle sparked by a true product of our time — tweets. The SEC claims Musk’s recent use of Twitter violates the conditions set out in the settlement reached between the regulator and Tesla last year, a settlement resulting from a lawsuit over … tweets.

“Put your reasonableness pants on,” Judge Alison Nathan told the two parties in a New York City federal court yesterday.

If you’re not aware of what brought Musk and the SEC to this point, please read this for background:

On February 19th, Musk tweeted that his company expected to “make around 500k” cars by the end of the year. He corrected himself a few hours later, tweeting, “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.”

To use an overused term ripped from modern American headlines, the SEC pounced. In an earnings report issued not long before the tweet, Tesla claimed its forecast for the year was 400k vehicles. To the SEC’s eyes, this was misleading information, and a clear violation of the settlement agreement. It called on a federal judge to hold Musk in contempt of court.

The two sides disagree on whether the tweet was “material,” meaning information of interest to shareholders that should only be disseminated through official channels. The settlement Musk agreed to contained a directive for Musk’s tweets to be overseen by a third party to prevent the kind of shenanigans seen last August, when Musk tweeted that he was planning to take the company private, then pulled a U-turn.

Musk’s lawyers claimed such an order would violate their client’s constitutional rights. The SEC claimed Musk and his team were being ridiculous.

In a filing to the U.S. District Court for the Southern District of New York last month, the SEC wrote:

It is therefore stunning to learn that, at the time of filing of the instant motion, 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. Many of these tweets were about the topics specifically identified by Tesla in its own policies as potentially material to shareholders. Musk reads this Court’s order as not requiring pre-approval unless Musk himself unilaterally decides his planned tweets are material.

On Thursday, Judge Nathan sent both parties home, giving them two weeks to decide exactly how Musk’s tweets are supposed to be monitored. Only then will she look into whether the CEO breached the court-imposed conditions. If Musk is found in contempt, there’ll be an even shorter leash coming his way — a stiff fine, and perhaps even a demotion from his position atop the company.

The New York court hearing came the day after Tesla released lackluster quarterly production and delivery figures, surprising some analysts and worrying investors.

[Sources: CNN, CNBC] [Image: Tesla]