Elon Musk ‘dodges another bullet’ in tweet contempt case

A judge tells Elon Musk and regulators to compromise over moves to hold the Tesla boss in contempt.

Tesla CEO Elon Musk outside the federal court. Pic: AFP

A federal judge told Elon Musk and the US government to craft a compromise that would avoid the need to determine whether the Tesla chief executive violated a court order governing his communications on social media.

US District Judge Alison Nathan, showing some disappointment with the Securities and Exchange Commission’s rush to court to have Mr Musk held in contempt, told the two sides at a New York court hearing to “put their reasonableness pants on” and report back to her after two weeks.

The step could save Mr Musk from harsher restrictions on his use of Twitter and from the possibility of stiffer financial penalties.

The SEC in its request to the court asked the judge to spell out a “series of escalating fines” that would result if Mr Musk is found in contempt and later again violates a 2018 settlement deal, which required him to seek approval for his tweets.

Mr Musk attended the hearing but didn’t address the court. Dressed in a dark suit, white shirt and a dark-grey tie, he sat quietly behind the SEC’s attorneys and frequently furrowed his brow or narrowed his face during the SEC’s presentation.

He was swarmed by reporters and autograph seekers outside the courthouse after the hearing and told reporters he was “very happy with the results.”

Asked on CNBC later if he could reach an agreement with the SEC within two weeks, he said: “Most likely.”

Elon Musk is swarmed by reporters outside the court. Pic: AFP

Lawyers for the SEC declined to comment after the hearing.

“This is a best-case outcome for Elon,” said Gene Munster, managing partner at investment and research firm Loup Ventures. “While they still need to come to an agreement, he effectively dodged another bullet.”

Judge Nathan could still find Mr Musk in contempt if the two sides can’t agree to terms. While she questioned whether legal language restricting Mr Musk’s statements was clear enough for him to understand it, she concluded the hearing by saying that she “must and will ensure court orders are followed.”

The fight stems from a February 19 tweet that Mr Musk sent suggesting the company would build 500,000 vehicles this year. Working with a company lawyer, he followed up later with another tweet that said Tesla planned to deliver about 400,000 vehicles in 2019 and that his earlier tweet referred to a different measure: a weekly build rate that by the end of the year would equate to an annual total of 500,000.

The SEC said the second tweet showed that Mr Musk had violated a unique condition of his 2018 settlement, which required he get preapproval from company lawyers for tweets that could affect demand for Tesla’s shares. Tesla admitted Mr Musk didn’t seek preapproval for the first tweet on February 19, but disputes that it was material.

The SEC sought controls around his Twitter use after it alleged a series of tweets he issued in 2018 about securing funding to take the company private amounted to fraud. Shares soared on the surprising announcement -- only to fall in following days when it became clear there was no final deal.

To resolve the 2018 enforcement investigation, Mr Musk agreed to step down as chairman and to pay a $US20 million fine. Tesla also paid a $US20 million penalty. He also agreed to get preapproval for tweets or other communications that “contain, or reasonably could contain,” material information.

Judge Nathan questioned the SEC’s lawyer, Cheryl Crumpton, about whether that language was too vague to serve as the basis for finding Mr Musk in contempt. Judge Nathan also appeared dissatisfied with the SEC’s efforts to negotiate with Mr Musk’s legal team before the commission revived the case in late February by filing a contempt motion against Mr Musk.

“I’ll admit surprise,” Judge Nathan said halfway through a hearing where she peppered both sides with questions. “This screams of working it out.”

In a statement after the hearing, Mr Musk stated his respect for the judge and her decision.

“The tweet in question was true, immaterial to shareholders, and in no way a violation of my agreement with the SEC,” he said. “We have always felt that we should be able to work through any disagreements directly with the SEC, rather than prematurely rushing to court.”

Mr Musk came to court as Tesla shares plummeted by as much as 10.7 per cent following worse-than-expected vehicle-delivery results during the first quarter. The news raised questions about whether demand is drying up for the company’s most expensive cars and about Tesla’s ability to deliver the new Model 3 compact car aimed at the masses.

Tesla stock closed 8.2 per cent lower at $US267.78.

The spectre of a harsher punishment against Mr Musk also heightened anxiety about Tesla in a year that was supposed to be all about how it is maturing enough to be a profitmaking, global car company.

Tesla said yesterday it expects to deliver between 360,000 and 400,000 vehicles this year. Ryan Brinkman, an analyst for JP Morgan, said in a note that those figures run counter to Mr Musk’s February tweets that said the company would make 500,000 vehicles this year.

“The reaffirmation of 360-400K full year deliveries last night appears to clarify [that] official guidance has in fact all along remained at 360-400K,” Mr Brinkman said. “The now clear incongruence of CEO outlook statements with official company guidance may hurt the perception of management commentary, eroding investor confidence and potentially placing additional pressure on the shares.”

With Tim Higgins

Wall Street Journal