Tesla Musk faces court contempt charge while SEC says tweets violate contract


SAN FRANCISCO (Reuters) – The US Securities and Exchange Commission said on Monday that Tesla Inc. chief executive officer Elon Musk had violated a fraud settlement by making new misrepresentations on Twitter, prosecuting a lawsuit against the company. Contempt for the leader of the electric car and sending stock of the company down 5 percent in the extended trade.

The SEC's request could potentially reopen a turbulent chapter for the electric vehicle manufacturer in which regulators had accused Musk of fraud for misleading tweets about the company's privatization plans and demanded that he be removed from office of CEO.

Musk, Tesla and the SEC settled the dispute in part, and part of the settlement provided that any important statements made by Musk on social media were previously verified by the company.

In a lawsuit filed Monday in court, the regulator reported a tweet from Musk on Feb. 19: "Tesla made 0 cars in 2011, but will make about 500,000 in 2019," pointing out that Musk had not asked for or received prior permission before posting this tweet. was inaccurate and spread to more than 24 million people.

"Musk has thus violated the court's final ruling by adopting the behavior that the prior approval clause of the final judgment was intended to prevent," the SEC wrote in its petition filed Monday in federal court in Manhattan.

Musk corrected his tweet four hours later to indicate that the "annualized production rate" at the end of the year 2019 would likely be about 500,000, with deliveries expected to be around 400,000 .

The motion asks the judge to make an order that would impose on Musk the burden of demonstrating why he should not be found guilty of contempt of court for violating the settlement.

Tesla did not immediately respond to a request for comment.

Tesla and Musk agreed in September to pay $ 20 million each to the SEC. The billionaire retired from his position as president of the company but remained as general manager. In the settlement, the agency waived its original request that Musk, which is synonymous with the Tesla brand, be prevented from running Tesla, a penalty that, according to many investors, would be disastrous.

The settlement was approved by a US judge in October, who can now decide whether his conditions have been violated.


Musk provoked the SEC even after signing the settlement, calling the agency "Shortseller Enrichment Commission" on Twitter in October.

In an interview with "60 Minutes" in December, Musk said none of his tweets had been censored since the settlement, and only those who could move Tesla's stock should be examined.

"I want to be clear. I do not respect the SEC, "he said, adding that he respected the judicial system.

In response to the SEC's request for information regarding the tweet of February 19, a lawyer from Tesla and Musk said the CEO's tweet was intended to reiterate the information already approved, and then aired when the company released its news. fourth quarter results in January.

Although the tweet was not pre-approved, said the lawyer, Musk thought his stuff had been "properly controlled, pre-approved, and publicly broadcast." In addition, the lawyer stated that the statement had been made outside of trading hours.

It was not immediately clear what the consequences would be if Musk were found guilty of contempt of court, as such a quote does not necessarily mean that the original agreement is now null and void.

The SEC may seek an alleged bar from the Tesla Board of Directors or ask for a lesser penalty, such as a fine, said Stephen Diamond, a professor of corporate governance at the University of Santa Clara.

The SEC could also ask the court to reopen the original renegotiation by-law, he said, possibly asking for initial charges to be reinstated.

"It's a pretty unusual situation," said Diamond, adding that "all bets are open".

FILE PHOTO: Tesla and SpaceX President Elon Musk Participate in a "Fireside Conversation" at the 2018 National League of Cities (NLC) Summit in Los Angeles, California on November 8, 2018. REUTERS / Kyle grillot

Tesla's board has added new members to the settlement, steps that hope some foreigners will strengthen Musk's oversight. Board member Robyn Denholm was also named chair after the dismissal of Musk, but did not comment on the new incident.

Charles Elson, director of the corporate governance center at the University of Delaware, said Tesla's board of directors "must seriously reconsider the company's relationship with Mr. Musk."

"The council must act. End of the story. And if they do not, the question is how responsible they are.

Reportage of Akanksha Rana and Ankur Banerjee in Bengaluru, Jan Wolfe in Washington and Alexandria Sage in San Francisco; edited by Sriraj Kalluvila, Jonathan Oatis and G Crosse

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