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SEC Charges Elon Musk With Neglecting Settlement Terms After ‘misleading’ Tweet

Bhaswati Sarkar
Bhaswati Sarkar
She likes to lose herself in music and daydreams quite often. Travelling excites her and photography is her passion- nature is her favorite subject. Writing is cathartic for her. A happy-go-lucky kind of person, she tries to remain calm and serene through daily life.

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Elon Musk has been charged with posting yet another misleading tweet on February 20, which seems to go against the requirement to get his market-related social media posts pre-approved by Tesla lawyers.

The US Securities and Exchange Commission (SEC) charged Musk with violation of his agreed-to settlement dated last October when Musk’s tweet about Tesla going private at $420 per share was found out to be unreliable without solid backing, following which Tesla’s CEO was held accountable for publishing fallacious information regarding the market thus flouting federal securities laws. Both Tesla and Musk had to pay a $20 million fine each in accordance with the previous settlement. The settlement even barred Musk from serving as chairman for at least three years.

This move by SEC would make Musk and Tesla face more legal penalties, which can even amount to Musk being forbidden from being involved in the administration of Tesla or any other public company for a period of time.

Having your CEO in contempt of an SEC action is a pretty bad thing. They settled with him and within a few months he’s back to doing similar things. It’s unbelievable. – Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware

Tesla’s response to SEC’s move was his tweet that stated that SEC had failed to notice a comment that Musk had made on Tesla’s earnings call dated January 30, which had announced that Tesla’s annualized production rate may reach half a million Model 3 sedans in 2019. Tesla’s lawyer stated that Musk had repeated the information posted before: “we are targeting annualized Model 3 output in excess of 500,000 units sometime between Q4 of 2019 and Q2 of 2020.”

SEC accused Musk of publishing inaccurate information, especially when it was clearly stated that Tesla would reach that milestone sometime between Q4 2019 and Q2 2020. According to court papers filed in Manhattan federal court, SEC alleged that Musk “once again published inaccurate and material information about Tesla to his over 24 million Twitter followers, including members of the press, and made this inaccurate information available to anyone with Internet access.”

Moreover, Musk’s tweet was, more importantly, not given pre-approval by Tesla lawyers, which is a violation of an agreed-to settlement by Musk.

Brad Bennett, a former SEC enforcement attorney, stated that the SEC “has to view the conduct as akin to another violation of securities laws to take this step… It’s a very novel situation where someone is running an enterprise with this kind of market cap and gives the SEC cause for concern that the person is not capable of following the securities laws.”

The case is SEC v. Musk, 18-cv-8865, U.S. District Court, Southern District of New York (Manhattan). Soon after this filing, Tesla shares, which had already fallen by 10 percent this year, plunged up to 5.4 percent within a few hours.

A hearing hasn’t been scheduled to consider the contempt request by US District Judge Alison Nathan, who has been appointed to handle the case, nor has a date been set for Musk or Tesla to respond to the filing.

Ever since the October settlement, Elon Musk has publicly criticized the SEC, sarcastically calling it a “Shortseller Enrichment Commission,” blatantly declaring his disrespect for the organization, and even saying in an interview to journalist Lesley Stahl that “I guess we might make some mistakes. Who knows? Nobody’s perfect.”

The quote was underlined by SEC in its new filing against Musk, stating that it demonstrated Musk’s negligence to seriously comply with the terms of the settlement.

According to Stephen Diamond, associate professor of law at Santa Clara University and specializing in corporate governance, “It’s very clear that the SEC is not happy with Musk… Musk is on a self-destructive path. He’s the controlling stockholder but he’s not respecting the rights of other shareholders.”

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