Elon Musk accused of contempt over Tesla tweets

US regulators want a judge to hold Elon Musk in contempt of court over tweets about Tesla production volumes.

Tesla CEO Elon Musk is accused of violating an agreement with regulators over his tweets. Pic: AFP

America’s Securities and Exchange Commission has asked a federal judge to hold Tesla chief executive Elon Musk in contempt of court over tweets he made last week discussing the automaker’s projected production volumes in 2019.

In a federal court filing, the SEC said Mr Musk violated a condition of his settlement with the regulator last year, when he was accused of tweeting misleading information about taking Tesla private.

Mr Musk’s deal with the SEC required that Tesla officials preapprove any statements from Mr Musk that could affect the company’s stock price.

A Tesla spokesman and Mr Musk didn’t have a response to requests for comment. Tesla shares, which gained 1.4 per cent in regular trading, were off 4 per cent after-hours following the SEC filing.

In a series of Twitter messages on February 19 that began as a celebration over Tesla vehicles prepared for shipment to Europe, Mr Musk noted how the automaker had seen large growth in recent years. “Tesla made 0 cars in 2011, but will make around 500k in 2019,” he said in one posting at 4.15pm California time.

Tesla made 0 cars in 2011, but will make around 500k in 2019

— Elon Musk (@elonmusk) February 20, 2019

The suggestion that Tesla would make 500,000 vehicles this year stood in contrast to previous guidance by the company on January 30.

In his quarterly shareholder letter, Mr Musk told investors that Tesla would reach an annualised build rate of 500,000 Model 3s sometime between the fourth quarter and second quarter of next year. Tesla planned to deliver as many as 400,000 in all of 2019.

More than four hours after his tweet on February 19, Mr Musk clarified in another message, saying: “Meant to say annualised 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 said in its filing that Mr Musk “did not seek or receive pre-approval prior to publishing this tweet, which was inaccurate and disseminated to over 24 million people.”

In its response to the SEC, Tesla stated the content of Mr Musk’s tweet had previously been preapproved for a January 30 release by the company’s general counsel and designated securities counsel.

“Although the 7.15pm tweet was not individually preapproved, Mr Musk believed that the substance had already been appropriately vetted, preapproved, and publicly disseminated,” wrote Bradley Bondi, outside counsel working for Tesla, in a letter dated February 22 and included in the material filed with the court by the SEC and released. “Moreover, the tweet was made outside of Nasdaq trading hours.”

Tesla’s designated securities lawyer monitors Mr Musk’s Twitter account and saw the February 19 tweet, according to Mr Bondi, a partner at law firm Cahill, Gordon & Reindel. The designated securities lawyer and Mr Musk huddled at the automaker’s factory and drafted a tweet to clarify the original one, Mr Bondi wrote.

The likely next step is a court hearing where a judge will consider whether Mr Musk’s tweet violated the terms of his earlier settlement and, if so, what kind of punishment is necessary to get him to comply, said Brad Bennett, a former enforcement director at the Financial Industry Regulatory Authority.

An SEC spokeswoman declined to comment on what additional punishment Mr Musk could face.

A judge is unlikely to order the most extreme punishment -- barring Mr. Musk from being an officer of a public company -- because Mr Musk corrected his first tweet, Mr Bennett said. But a judge could order further limitations on Mr Musk’s activities or any other kind of remedy “that they believe are necessary to get him to comply with the settlement,” Mr Bennett said.

The SEC began scrutinising Mr Musk’s use of Twitter after he surprised investors on August 7 with tweets that stated he was thinking about taking the automaker private, and had secured funding. Tesla’s shares immediately soared but fell in later days when The Wall Street Journal and others reported that Mr Musk and his advisers were still trying to line up potential investors and buyers.

The SEC accused Mr Musk of misleading investors and sought to bar him from serving as an officer or director of publicly traded companies. While Mr Musk had denied wrongdoing, he settled with the SEC in September in a deal that allowed him to stay as CEO but had him give up his role as chairman. Mr Musk and Tesla also each agreed to pay a fine of $US20 million.

Tesla agreed to appoint two new outside directors and greater oversight of Mr Musk’s communications that could be seen as material. The episode had become an enormous distraction at a time when Tesla was under intense pressure to consistently build Model 3 sedans and achieve Mr Musk’s aim of making more-affordable electric vehicles and evolving from a niche luxury-car company.

Following the settlement, Mr Musk seemed to mock the SEC, including in an October tweet that dubbed the agency the “Shortseller Enrichment Commission.” In December, he went even further, saying in a high-profile 60 Minutes interview that he didn’t respect the SEC.

During the interview, Mr Musk said that since the settlement, none of his tweets had been censored -- and no one was reading them before they went out.

“The only tweets that would have to be, say, reviewed would be if a tweet had a probability of causing a movement in the stock,” he said. “Otherwise, it’s ‘Hello, First Amendment’ -- like, freedom of speech is fundamental.”

The day after the February 19 tweets, Tesla named a new general counsel to replace Dane Butswinkas, who was departing after just two months on the job. His departure was in the works prior to Mr Musk’s tweet, according to people familiar with the situation.

Tesla’s new top lawyer is Jonathan Chang, a company insider who had handled securities issues among other corporate matters.

Mr Musk’s Twitter usage outpaces most tech executives, with an unusually large proportion being replies to other tweets. He often shares life views, rebuts critics and teases business ideas -- while sometimes causing controversy.

Weeks before the August “funding secured” tweets, Mr Musk suggested on Twitter that one of the cave explorers who helped rescue a boys soccer team in Thailand was a paedophile, a claim that has led to a defamation lawsuit. Mr Musk asked a US judge to dismiss the lawsuit, saying his comments were protected as free speech under US law. The case is ongoing.

Dow Jones Newswires