Musk-SEC Battle Rages On; Regulator Claims Tesla CEO's Twitter Account Is Still the Wild West

Steph Willems
by Steph Willems
musk sec battle rages on regulator claims tesla ceos twitter account is still the

There’s no shortage of distractions coming out of Tesla to take the focus away from a smoldering legal battle between the automaker and its favorite foe, the U.S. Securities and Exchange Commission.

The SEC, however, isn’t easily led astray by retail store turmoil and the promise of a crossover with no home. The regulator has stepped up its efforts to see Tesla CEO Elon Musk held in contempt of court for violating an earlier settlement agreement. At the root of the two contempt orders, the latest filed on Monday, is the source of all evil in today’s world: social media.

Just as a summertime tweet from Musk sparked a lawsuit that ultimately saw the Tesla co-founder dropped as company chairman and kept on a short Twitter leash, a February tweet stirred up the current controversy.

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.

Musk’s legal team argued the CEO did nothing wrong in the eyes of the law, claiming the tweet “was not material.” In the earlier settlement (which came after a fraud suit that Musk dared the SEC to file), Musk agreed to Court-ordered pre-approval of communications containing material that would be of importance to Tesla shareholders. That includes tweets. It was assumed that a third party would peruse all of Musk’s tweets before he fired them off into the internet ether.

Get real, Musk’s lawyers claimed.

“Since entry of the Order, Musk has dramatically reduced his volume of tweets generally and regarding Tesla in particular,” they wrote in a March 11th filing, adding, “the Order as the SEC interprets it would raise serious First Amendment issues and implicate other constitutional rights. The SEC seeks to rewrite the Order to eliminate Musk’s discretion, effectively requiring Musk to seek pre-approval of any tweet that relates to Tesla, regardless of its significance, prior dissemination, or nature.”

The SEC fired back on Monday. In a filing to the U.S. District Court for the Southern District of New York, the regulator claims Musk apparently had no intention of complying with the Court’s order, or the Feb. 19th tweet wouldn’t have happened.

“Musk’s unchecked and misleading tweets about Tesla are what precipitated the SEC’s charges, and the pre-approval requirement was designed to protect against reckless conduct by Musk going forward,” the SEC wrote.

From that filing:

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. His interpretation is inconsistent with the plain terms of this Court’s order and renders its preapproval requirement meaningless.

In short, Musk’s team says the SEC is after an “unconstitutional power grab.” The SEC feels Musk’s defence “borders on the ridiculous.”

It’s not just the SEC that wants Musk to shut up. A group of institutional investors, already riled by Musk’s earlier tweets and seeking damages, filed suit in Delaware Chancery Court earlier this month in the hopes of barring Musk from unfettered access to the “tweet” button.

[Image: Tesla]

Comments
Join the conversation
3 of 11 comments
  • ToolGuy ToolGuy on Mar 19, 2019

    "Borders on the ridiculous" is going to become my new catchphrase - thank you SEC.

  • WildcatMatt WildcatMatt on Mar 20, 2019

    The broader issue to be grappled with here is the legal weight and context that should be given to messages sent via social media platforms, Twitter especially. Posters such as Musk seem to view Tweets as personal, quasi-private messages because of their informal nature; that these posts are the digital equivalent of off-the-clock watercooler chat that isn't "serious" and shouldn't really matter" in the same way that some memo printed on letterhead would. Claiming you weren't really talking "on the record" in an official capacity doesn't mean other people perceived it as such and won't act based on what you said.

    • EGSE EGSE on Mar 20, 2019

      Twitter has a worldwide reach. Even the CinC uses it to let the world know what's on his mind. But the venue isn't near as important as who is saying it. If you had a water-cooler chat with the CEO and he stated that your department was getting the axe next week, would you not worry because of where you were standing when he said it?

  • SilverCoupe I am one of those people whose Venn diagram of interests would include Audis and Formula One.I am not so much into Forums, though. I spend enough time just watching the races.
  • Jeff S Definitely and very soon. Build a hybrid pickup and price it in the Maverick price range. Toyota if they can do this soon could grab the No 1 spot from Maverick.
  • MaintenanceCosts Would be a neat car if restored, and a lot of good parts are there. But also a lot of very challenging obstacles, even just from what we can see from the pictures. It's going to be hard to justify a restoration financially.
  • Jeff S Ford was in a slump during this era and its savior was a few years away from being introduced. The 1986 Taurus and Sable saved Ford from bankruptcy and Ford bet the farm on them. Ford was also helped by the 1985 downsize front wheel drive full sized GM cars. Lincoln even spoofed these new full size GM cars in an ad basically showing it was hard to tell the difference between a Cadillac, Buick, and Oldsmobile. This not only helped Lincoln sales but Mercury Grand Marquis and Ford Crown Victoria sales. For GM full size buyers that liked the downsized GM full size 77 to 84 they had the Panther based Lincoln Town Cars, Mercury Grand Marquis, and Ford Crown Victorias that were an alternative to the new GM front wheel drive full size cars that had many issues when they were introduced in 1985 and many of those issues were not resolved for several years. The Marks were losing popularity after the Mark Vs.
  • SCE to AUX Toyota the follower, as usual. It will be 5 years before such a vehicle is available.I can't think of anything innovative from them since the Gen 1 Prius. Even their mythical solid state battery remains vaporware.They look like pre-2009 General Motors. They could fall hard.
Next