SEC says Elon Musk in contempt of court is very unusual



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  • According to the Securities and Exchange Commission, Tesla CEO Elon Musk allegedly committed a federal court contempt that approved a settlement between Musk and the agency, said the former chief counsel of SEC, Thomas Gorman, to Business Insider.
  • It is particularly rare for the SEC to start contempt proceedings against a company executive rather than the operator of an illegal business, such as a type ploy. Ponzi, said Gorman.
  • The most likely outcome is Musk being disciplined, fined and severely warned of the consequences of his disobedience with the SEC, said Peter Haveles, a Pepper Hamilton partner.

According to the Securities and Exchange Commission (SEC), Tesla CEO Elon Musk allegedly committed a contempt in federal court that approved a settlement between Musk and the agency, said former SEC chief counsel Thomas Gorman , to Business Insider.

Being found guilty of contempt of court means either misbehaving in a courtroom or deliberately disobeying a court order (the SEC accuses Musk of the latter). The SEC rarely engages contempt proceedings, Gorman said.

"There are just not a lot of cases like this," he said.

It is particularly rare for the SEC to start contempt proceedings against a company executive rather than the operator of an illegal business, such as a type ploy. Ponzi, said Gorman.

Read more: A judge has set a deadline for Elon Musk to defend himself against the SEC's claims of contempt of court

The SEC sued Musk in September, alleging that it had made "false and misleading statements" in August over the possibility of taking the automaker behind closed doors. Musk and the agency reached a settlement in September, under which Musk has neither admitted nor denied the allegations contained in the lawsuit but has resigned from his position as chairman of the board of directors. Tesla for three years and paid a fine of $ 20 million. The settlement also required Tesla to monitor Musk's communications, including on platforms such as Twitter.

But in the months following the settlement, Musk criticized the SEC, claiming in an interview at "60 Minutes" that he was not respecting the agency. And, on February 19, Musk tweeted a projection on Tesla's vehicle production in 2019, higher than the one announced by the automaker in its latest results letter.

Musk corrected the tweet, but the SEC said in court on Monday that Musk had violated the terms of its settlement with the agency by not asking for Tesla's approval before publishing his tweet on the production of vehicles. The agency asked a judge to convict Musk in defiance of the federal court that had approved the settlement.

But proving that Musk violated the terms of the settlement will be difficult for the SEC, which must endure a burden of proof just below what is needed for a criminal case, Gorman said.

"The SEC must prove that it is right by clear and convincing evidence.This is not enough to have a preponderance."

The most likely outcome is Musk being disciplined, fined and severely warned of the consequences of his disobedience with the SEC, said Peter Haveles, a Pepper Hamilton partner.

"It will be the equivalent of hitting him on the head with a two-on-four to get his attention."

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