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The Securities and Exchange Commission has asked a federal judge to convict Elon Musk, Tesla's boss, in defiance of tweeting Last Tuesday, "Tesla made 0 cars in 2011, but should make about 500,000 in 2019." In reality, Tesla is expected to produce only 400,000 cars in 2019. And the SEC claims that the tweet went against a settlement signed in October requiring Musk to seek the prior permission of the lawyers to Tesla before publishing on Twitter information likely to change the market.
Musk accepted this restriction to settle a lawsuit before the SEC following a previous tweet in which he claimed to have "obtained financing" to take Tesla privately at $ 420 per share. The public quickly discovered that Musk had not secured funding for such a transaction and federal securities laws prohibit the CEO of a publicly traded company from publishing misleading market information.
In his deal with the SEC, Musk agreed to pay a $ 20 million fine and relinquish his position as chairman of Tesla's board of directors (Tesla paid an additional $ 20 million fine). And to make sure that Musk was no longer misleading investors, the SEC asked Tesla to put in place a process of pre-approving all Musk tweets containing information that could change the market.
SEC says Musk violated pre-approval rules
But the SEC claims that Musk broke this promise of rules with last week's tweet. On Wednesday, the agency wrote to Musk and Tesla asking if his tweet had been pre-approved, as required by the regulations. In an answer Friday, Tesla's lawyer admitted that he had not done so.
Instead, the lawyer argued that Musk did not need pre-approval, because Musk was just repeating the information that Tesla had previously released. Specifically, the latest release of Tesla's results indicated that "we are aiming for an annualized production of Model 3 above 500,000 units between the fourth quarter of 2019 and the second quarter of 2020".
While Musk tweeted that Tesla would produce 500,000 cars in 2019, what he really meant was that Tesla would reach a annualized production rate 500,000 cars by the end of 2019, a clarification of Musk tweeted a few hours after his initial tweet.
But in the opinion of the SEC, that is not enough. Musk's tweet – 500,000 cars produced in 2019 – was not accurate. In addition, Tesla's previous forecasts did not even say that it would reach an annualized rate by the end of 2019, but that milestone would be reached. sometimes between Q4 2019 and Q2 2020.
The most important of Tesla's policy required that Musk "re-confirm the pre-approval" if more than two days have elapsed since the initial approval was granted – and the settlement-delivery required Musk to comply with the policy. . With Musk's tweet appearing several weeks after the release of January's results, the SEC argues that prior approval would have been necessary even though Musk had simply repeated information taken verbatim from an earlier Tesla publication.
"I guess we could make mistakes"
Musk did not help his case by publicly mocking the SEC in the months following the settlement. Even before the settlement was officially approved, he tweeted sarcastically about the "Short Vendor Enrichment Commission".
Musk was even sharper in December when he said 60 minutes "I do not respect the SEC."
In the same interview, Musk told reporter Lesley Stahl that all her tweets would not be reviewed by Tesla's lawyers, but only those likely to change market prices. Stahl asked "How do they know if this will move the market if they do not read them all?"
Musk replied, "I suppose we could make mistakes, who knows?" He added: "Nobody is perfect."
The SEC quoted this exchange in its new record against Musk, arguing that this demonstrated that Musk had never made a serious effort to comply with the terms of the settlement.
The SEC is asking the federal judge to sentence Musk in contempt for failing to comply with the court's October ruling. If the judge is siding with the SEC, we can expect the agency to seek further sanctions in the future.
The initial pursuit of the SEC in this case was to prevent Musk from sitting as Tesla's CEO. The SEC has abandoned this request as part of its deal with Musk, but this possibility could now be on the table again.
The SEC's case highlights last week that Dane Butswinkas, Tesla's General Counsel, was leaving the company after only two months of work. Tesla announced the departure of Butswinkas on Wednesday, February 20th. The SEC's letters asking Tesla and Musk for details about his car production tweet were from the same day. This is probably not a coincidence and this suggests that I was wrong to downplay the importance of leaving Butswinkas.
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