By on April 5, 2019

Elon Musk + Tesla Model S Circa 2011

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]

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18 Comments on “Judge Delivers Musk, SEC an Ultimatum...”


  • avatar
    Detroit-X

    Could it be instead that investors in Tesla have benefited from observing Musk’s true self in these Tweets? Like know the real company/CEO they consider investing in? Maybe the SEC should tell him to Tweet more?

  • avatar
    Robotdawn

    I don’t get how the courts or SEC even consider Twitter and it’s ilk legitimate information to be considered. It’s Twitter fergodsakes. If he was Twitting out fake SEC filings or 10Ks, then sure that’s criminal, but Tweets about how many cars or dollars he thinks his company may make? C’mon, the guy has been a walking huckster since Day 1.
    If you are making investment decisions based on someone’s Twitter or Facebook posts, shame on you.

    • 0 avatar
      R Henry

      I see your point, but it can also be reasnably argued that New York Times, Washington Post, CNN, FoxNews…etc… all promulgate misinformation at times to support their own agendas. As such, how can a Court unilaterally determine what is a “legitimate” source of news/information?

    • 0 avatar
      JimZ

      Tesla has stated in filings and press releases that Elon Musk’s Twitter feed is an official source of corporate information.

      Do you get it now?

  • avatar
    SCE to AUX

    What ever became of the two company-appointed overseers Mr Musk was to filter his tweets through? I had doubts such a nanny system could ever work, and I suppose their inbox is empty.

    Unfortunately, the credibility of social media is derived from its audience, not from the sender. For example, Mr Trump would be mute if political journalists ignored his tweets.

    So it may seem unreasonable for the SEC to give weight to Mr Musk’s tweets, but his utterances there are followed, and responded to, by thousands. This isn’t a case of a tree falling in the woods and nobody is there to hear it.

  • avatar
    ToddAtlasF1

    Alison Nathan makes Musk look prudent and modest.

  • avatar
    Master Baiter

    Musk’s behavior wouldn’t be tolerated at even the middle management level of any reputable Fortune 500 company.

    • 0 avatar
      chuckrs

      Yeah, most of those guys couldn’t conceive of what eventually became Paypal, either.

      Maybe the SEC should require that all CEO communications be no less than 1000 words…… That said, I do wish he’d step away from Tesla, stop mooning the SEC and get on with the serious business of SpaceX.

    • 0 avatar
      Luke42

      Agreed.

      I’m a Tesla fan, but I’ve been informed in several of my jobs that I’d be fired if I talked for the organization in public — unless I did so in coordination with the PR people. This is the case in both academia and in the fortune 500 world. A CEO should be capable of adhering to the same standards of conduct as rank-and-file white collar employees!

      Tesla is no longer a startup. It’s time to bring in the adult supervision. Musk should be demoted to the head of product development.

  • avatar
    EBFlex

    Musk is a fraud. It’s a shame the judge didn’t throw the book at him.

    What kind of moron sends out a tweet bloviating about their sales this year shortly before their earnings and delivery reports that show an absolute dismal performance for the quarter?

    Musk is the biggest dolt in the automotive industry and perhaps the entire business world.

  • avatar
    SoCalMikester

    if he was president, he could tweet whatever he wants with no repercussions at all.

  • avatar
    ToolGuy

    The SEC’s conduct, to quote the SEC, “borders on the ridiculous”… how much am I paying for this crap?

    “Musk is a fraud”… hmmmm… is he a *total* fraud? Are all my Paypal transactions about to be reversed? Those SpaceX booster landings look awfully real. And believe it or not, even if Tesla closed up shop tomorrow, they have had a massive impact on the global automotive industry.

  • avatar
    SuperCarEnthusiast

    SEC should force Elon Musk to step down from his management role and bar him from making any public statements with the violation to be a felony offense punishable by a federal prison time up to 20 years in prison with no parole for each offense. Multiple offense should be consolidated to not more the 60 years in prison.

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