What are the consequences of the Elon Musk Critical S.E.C.

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First, it was a tweet proclaiming "secure financing" for the privatization of Tesla. This prompted the Securities and Exchange Commission to sue Elon Musk, the company's general manager, for misleading investors.

Then, having reached a settlement with the SEC that has not yet obtained court approval, Mr. Musk spoke to Twitter and apparently called the agency "The Commission". # 39; enrichment of the short seller ". He also blamed BlackRock for lending shares to those who bet against the company.

The settlement included a permanent injunction – sometimes called a "no more" order – which poses a problem for Mr. Musk if he again violates the key anti-fraud provisions of the federal securities laws. But his tweets raise a question: will Mr. Musk be able to avoid violating securities laws in the future?

Mr. Musk's criticisms of the agency seem irritating and mismatched, given the need for approval of the regulations, but it is not the type of statement that misleads the shareholders. This indicates however that it may not be as unobtrusive as other defendants who have entered into an agreement with the S.E.C. and could violate the injunction. This could have serious consequences by allowing the CC to apply to the federal court for additional sentences.

A justification for the permanent injunction is whether the defendant is likely to violate securities laws in the future. Securities laws prohibit both false statements and those that are so basic that they could mislead investors – which the 280 characters allowed on Twitter could favor.

The SEC's settlement with Tesla, which was prosecuted separately from Mr. Musk, requires the company to "employ or appoint an experienced securities lawyer whose qualifications are not unacceptable". senior executives. This person must remain in place as long as Tesla remains a public company, with the company S.E.C. apparently in the hope that the lawyer will be able to mitigate Mr. Musk's comments on social media. In addition, the company must establish a committee of independent directors to oversee the controls that Tesla was asked to put in place with respect to the public statements of its officers.

But can Tesla's board of directors or the board of the company control Mr. Musk? The second. will certainly watch and has the ability to punish him if he makes any statements that are considered a potential violation.

If this happens, the COE could pursue a civil contempt case, and Musk's tweets criticizing the agency could reinforce it.

To prove a violation, the agency should show clear and convincing evidence that the order was valid and legal, clear and unambiguous, and that the offender had the ability to comply with the order. This is a higher standard than is generally used in civil cases, since a contempt finding can have serious consequences.

A federal judge who contests a civil contempt can order the defendant's incarceration until the person has complied with an order, but this is unlikely if the case involves only misleading statements. The most likely solution would be a corrective statement accompanied by an additional fine for a violation. Given Mr. Musk's wealth, it is likely that any fine would make little difference to him.

If the violation is serious, a court may require the defendant to be tried for criminal contempt. Under the federal law on contempt of court, a judge may convict a defendant if he voluntarily engaged in "disobedience or resistance to an act, to a process, to a lawful order, decision, order or order ". any future violation could result in a criminal sanction, which would have a disastrous impact on a corporate executive.