Tesla CEO, Elon Musk shots back at the SEC, saying that the filing against him is unconstitutional and that the SEC’s interpretation of the settlement agreement “raise serious First Amendment issues.”
The Securities and Exchange Commission filed Musk for contempt over an immaterial tweet on February 19 7:15 ET.
Musk tweeted to his nearly 25 million followers last February 19 claiming that Tesla will make around 500,000 cars by 2019. Tesla’s initial forecast indicated only a maximum of 400,000 this year just a few weeks before.
Musk added another tweet, a few hours later, correcting himself that Tesla will be able to make cars at an annual rate of 500,000, but will still only make 400,000 in 2019.
Tesla’s lawyers, in a letter to the SEC filed with the court, admitted that there were no pre-counsel regarding Musk’s February 19th tweet. Tesla executives, in reaction, talked to Musk about it, resulting in Musk’s clarification tweet 3 hours later.
The SEC filed Musk at the US District Court for the Southern District of New York saying that the tweet was violating the settlement agreed on last September 2018. Musk had until Monday to respond to the filing against him and to explain as to why he shouldn’t be held against contempt.
Time was ticking down for Musk, and his lawyers said in a court filing Monday that, “the Securities and Exchange Commission’s request that Musk is held in civil contempt for a single, immaterial tweet that dutifully complied with [a court-ordered settlement] is incorrect on the facts and the law.”
Musk’s lawyers said in the response on SEC’s motion that Musk’s tweets were merely a message that “Tesla has come a long way and is now flourishing.” Moreover, that “this was a celebratory string of tweets, expressing excitement about Tesla’s success since 2011 and pride for what Tesla anticipated achieving in 2019.”
Musk argues that he has committed and is earnest with the settlement that was agreed on. “This self-censorship is reflective of his commitment to adhering to the [settlement] and avoiding unnecessary disputes with the SEC,” but “the SEC jumped at the first opportunity to move for contempt against Musk,” the motion says.
The clarification tweet, Musk elaborates that the first tweet did not require pre-approval, but he quickly posted the clarification out of caution.
A minor error wouldn’t have caught the SEC’s attention, but Musk has been in conflict with the SEC since last September, which forced Musk to step down as Chairman of Tesla.
Last year, Musk was held against securities fraud filed by the SEC after tweeting that Tesla will go private and funding is secured on August 7th. Musk led the public to believe that Saudi Arabia’s sovereign wealth fund was in talks with Tesla to potentially fund the effort.
The SEC approached Musk regarding the decision to go private, which it, later on, announced that Musk’s tweet was “false and misleading.”
The SEC filed suit against him in the Southern District of New York on September 27th. Along with this, Musk accepted a settlement that barred him from any officership or directorship from any public company leading to him stepping down as Tesla’s chairman and paying a fine of $20 million each from Tesla and Musk.
Moreover, the settlement also included Musk to have all public information including his tweets regarding Tesla to be pre-approved and undergo pre-counsel with in-house lawyers.
By contrast, Musk’s lawyers characterize the SEC’s interpretation of the settlement as an “unconstitutional power grab.” The SEC’s interpretation of the settlement “would effectively prevent Musk from speaking on any matters related to Tesla business based on the subject matter alone.”
On the other hand, Musk’s after-hours February 19th tweet was done after hours that would not have affected stock prices, unlike his August tweet that made Tesla’s stock prices soar. Actually, the SEC’s motion to have him held in contempt caused Tesla’s stock price to go down 3.4 percent, the motion says.
The SEC complaint comes at a time when the company is struggling to hold its foot down with recent reports that Tesla will be closing its physical stores and laying off staff–eventually, reversing this and decided to raise prices on its vehicles instead–to make way for the cheaper $35,000 Model 3 that the company wants the public to gain access to, among other problems regarding demand doubts, growing debts, and competitive pressures.