Elon Musk's fight against the SEC: Here's what could happen next

The SEC on Monday urged a federal judge to sentence Musk in contempt for violating an agreement reached last year. This puts the president and CEO of Tesla, billionaire, in legal danger – and could expose him to serious consequences if the judge alongside the regulators.

It could also increase the pressure on You're here (TSLA) and its board of directors to take action against Musk independently.

Another dust

Musk 's latest statement to the SEC comes from a tweet he sent a week ago, Feb. 19: "Tesla made 0 cars in 2011, but will make about 500,000 in 2019. " A few hours later, Musk sent a follow-up tweet stating that the company will actually deliver only 400,000 cars this year.

Although Musk corrected his mistake, the regulators reprimanded Musk for re-publishing "inaccurate and material information about Tesla to its more than 24 million followers on Twitter." The SEC said that Musk had not requested or received the company's approval before sending the tweet, as required by the regulations.

Has Musk broken the contract?

The consequences for Musk largely depend on Justice Alison Nathan of the US District Court.

After that, Nathan will have to decide: has Musk broken the terms of the settlement agreement that she approved in October?

The burden of proof lies with the SEC.

"It's not because they claim it means it's true," said David Chase, a former SEC prosecutor.

Tesla accepted in October establish a board committee to oversee the Musk positions. The SEC claims that Musk's February tweet violated the agreement and that he had "not made a diligent or good faith effort" to comply.

In one trial, Tesla admitted that Musk did not receive prior approval of his duties, but said he did not need it. Tesla said the language used was based on information released 20 days earlier in the January 30 earnings conference call with Wall Street analysts.

However, the settlement agreement states that any changes to a pre-approved language must be re-approved by the Tesla Committee. And even if it was word for word, Musk would have needed a new approval because the pre-approval expired after two days. In addition, the SEC pointed out that the wording tweeted by Musk had not been previously approved because it was incorrect.

The judge's decision

If Nathan sided with the SEC and found that Musk was in defiance of violating the settlement agreement, she will have a range of options to punish Musk and dissuade him from breaking up again. agreement. The consequences could go from a fine to the revocation of his position as CEO, as well as the limitation of the subsequent use of social media.

"The judge has tremendous discretion," said Peter Haveles, a partner in the litigation and litigation group at law firm Pepper Hamilton.

The SEC did not specify the sanctions it would seek if it were found to be in contempt of court, but it had already tried to remove Musk from his position as CEO.

Haveles predicted that the judge would probably fine Musc, but would avoid such a nuclear option for now.

"It's the first time [he broke the agreement], "he said." This is not trivial, but it has not had a dramatic effect on the market. "

In this case, however, the judge's message would be very clear: do not try again.