Elon Musk is in hot water with the Securities and Exchange Commission again.
In February, the U.S. regulator asked a federal judge to hold Tesla Inc.’s (TSLA) CEO in contempt after he inaccurately tweeted Feb. 19 that the electric automaker will make around half a million cars in 2019 to his 25 million followers. The SEC wasn’t impressed, claiming that the tweet, which Musk corrected four hours later to include the term “annualized,” betrayed a legally-binding agreement prohibiting him from publishing market-moving messages on social media without them being vetted first.
"Musk did not seek or receive pre-approval prior to publishing this tweet, which was inaccurate and disseminated to over 24 million people," the SEC wrote in the court filing.
The SEC has now reiterated its request in a new filing that offers additional details and asks the court to impose an "appropriate remedy to ensure future compliance."
The regulator has learned from Tesla that Musk had not sought pre-approval for a single tweet he published about the company in the months since the court-ordered pre-approval policy went into effect.
It has also rejected Musk's claim that his tweet from Feb. 19 was not "news" or "material." It said, "Musk’s arguments do not change the fact that, before the 7:15 tweet, Tesla had never disclosed that it planned to make around 500,000 cars in 2019. Therefore, Musk was required to obtain pre-approval before he published this statement." It also cited as evidence the fact that Tesla’s Designated Securities Counsel rushed to draft a clarifying tweet after the misleading one was published.
The SEC says it is "particularly troublesome" that Musk believes he himself can decide when the pre-approval requirement is required, since it's his lack of judgement that caused an issue in the first place. It also dismissed his protest that his free speech is being violated.
Breaching Earlier Settlement
In Oct. 2018, Tesla and Musk reached a settlement with the SEC after the regulator took issue with the CEO tweeted about taking the company private. The agency, which initially sought to prevent Musk from running the automaker, later agreed to a settlement that saw him get slapped with a $20 million fine, relinquish his position as chairman of the company and agree to seek approval before tweeting.
The SEC is now arguing that Musk’s Feb. 19 tweet breached that agreement. According to Arstechnica.com, the regulator wrote letters to Musk and Tesla to seek confirmation on whether the production target tweet had been pre-approved as required. Tesla’s lawyer admitted that it hadn’t and that it didn’t need to be as Musk was repeating information that the company said in its annual report.
That’s not entirely true. Firstly, as part of their settlement, pre-approval of tweets is required if information is repeated from an official Tesla statement shortly after it is published. And secondly, Musk’s tweet wasn’t entirely accurate as the automaker said in its report that it hoped to hit an annualized production target of 500,000 cars sometime between the end of 2019 and second quarter of 2020.
Interestingly, Tesla general counsel Dane Butswinkas, the person most likely responsible for reviewing Musk’s tweets, resigned one day after the CEO claimed that 500,000 cars would be made this year.
Musk responded to the SEC’s court filing within a couple of hours. The entrepreneur, who once sarcastically called the agency the “Shortseller Enrichment Commission,” proclaimed his innocence and expressed his faith in the U.S. justice system.
"SEC forgot to read Tesla earnings transcript, which clearly states 350k to 500k. How embarrassing ..." He then added in another Tweet that he has “great respect for judges.” “It's not perfect, but, in general, we should be very glad of the U.S. justice system.”