Published: Tue, March 19, 2019
Markets | By Otis Pena

Musk defense "borders on the ridiculous", SEC tells court

Musk defense

The Securities and Exchange Commission, in a court filing on Monday, said a tweet Elon Musk published in February was a "blatant violation" of a $US40 million court settlement that requires Tesla to appoint a "Twitter czar" who would vet his tweets for information material to the company before publishing. Hours later, Musk followed up with another tweet clarifying that Tesla was aiming to achieve an annualized production rate of 500,000 cars (10,000 per week) but was projecting 400,000 cars produced during the 2019 calendar year.

Tesla responded, after more than two weeks, to say simply: "No".

"Musk failed to seek pre-approval of any of his Tesla-related tweets, from the time Tesla implemented its Court-ordered Policy until the SEC filed this motion". The agency is asking NY federal Judge Alison Nathan to hold Musk in contempt for tweeting a projection of 2019 vehicle output without first getting the tweet approved by Tesla's lawyers.

The settlement stemmed from tweets by Musk in August about having the money to take Tesla private at $420 per share when the funding wasn't secured.

Lawyers for Musk said the tweet complied with the company's communication policy for senior executives and was a "proud and optimistic restatement of publicly disclosed information".

The regulator last month alleged that Musk had violated a September settlement of fraud charges by tweeting material information about Tesla without pre-approval from the company. The SEC rejected the claim in its latest filing. He called the new assertions "unsupported" and asked to submit documentation about negotiations with the agency "which undermines the newly-presented interpretation the SEC sets forth in its reply".

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If U.S. Judge Nathan finds Musk in contempt, she's empowered to impose new fines, order additional controls on Musk's social-media use, and even suspend or bar him from running Tesla or any other public company.

In the SEC's view, all of these topics were potentially significant for Tesla's shareholders, and hence Musk should have sought approval from Tesla's lawyers before tweeting about them. The SEC has gone on to claim that Musk's tweet was "demonstrably material and inaccurate".

He also said it was posted after the markets had closed and did not impact on trading.

Musk "individually pre-approved" the tweet.

The case is U.S. Securities and Exchange Commission v. Musk, 18-cv-08865, U.S. District Court, Southern District of New York (Manhattan).

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