- Tesla CEOElon Musk has run into trouble with the Securities and Exchange Commission (SEC) twice in the past year after he tweeted in August that he had lined up a deal to take Tesla private.
- Musk settled with the agency in September after it alleged that he was not as close to acquiring funding for the deal as he indicated.
- In February, Musk tweeted a projection about vehicle production that the SEC says violated the terms of their settlement. The agency asked a judge to hold Musk in contempt of the court that approved the settlement.
- Attorneys for Elon Musk and the SEC will make their case before a judge in New York City on Thursday.
Tesla CEO Elon Musk has run into trouble with the Securities and Exchange Commission (SEC) twice in the past year after he tweeted in August that he had lined up a deal to take Tesla private.
The SEC sued Musk over that tweet, arguing that Musk was not as close to acquiring funding for the deal as he indicated. Musk reached a settlement with the agency that required him to step down as the chairman of Tesla’s board of directors for three years, pay a $US20 million fine, and receive approval for all future written communications that could be relevant to Tesla shareholders.
Read more: The 36 wildest Elon Musk quotes
But Musk was not chastened by the settlement. In the following months, he lashed out at the SEC, saying he did not respect it. And in February, he tweeted a projection about vehicle production that the SEC says violated the terms of their settlement. The agency asked a judge to hold Musk in contempt of the court that approved the settlement.
Musk and the SEC have since argued over whether or not Musk’s February tweet followed the terms of their settlement.
Here’s what you need to know about Musk and the SEC’s fraught relationship.
Got a Tesla tip? Contact this reporter at [email protected].
August 7, 2018: Musk says he has “funding secured” to take Tesla private
Musk tweeted on August 7 that he had obtained the funding necessary to take Tesla private at $US420 per share.
“Am considering taking Tesla private at $US420. Funding secured,” Musk tweeted before issuing a formal statement on Tesla’s website.
Musk said in the statement that a shareholder vote would have to be held before a final decision could be made. But he tweeted that investor support was confirmed.
Taking the company private was “the best path forward,” Musk said in the statement. He said the pressures of being a public company created distractions and promoted short-term thinking that might not produce the best decisions in the long term.
Musk’s statements raised questions about the certainty of funding he referenced and where it would come from.
September 27, 2018: The SEC sues Musk
The SEC filed a lawsuit against Musk in September, alleging that Musk made “false and misleading statements” in August about the possibility of taking Tesla private. The agency said in the lawsuit that it sought to bar Musk from being an officer or director of a public company.
In the lawsuit, the SEC claimed Musk said a representative from Saudi Arabia’s Public Investment Fund had shown interest in taking Tesla private, but that Musk had never discussed any of the specific terms he described on Twitter with the Saudi fund or any other potential backers before making them public. Those terms included the proposed $US420 share price and an option for all existing Tesla shareholders to remain with the company after it went private.
Musk said he was “deeply saddened and disappointed” by the lawsuit, which he called “unjustified,” in a statement to Business Insider.
September 29, 2018: Musk settles with the SEC
The SEC reached a settlement with Musk at the end of September. Under the terms of the settlement, Musk didn’t admit or deny the allegations in the agency’s lawsuit against him, but had to step down as the chairman of Tesla’s board of directors for three years, pay a $US20 million fine, and receive approval for all future written communications that could be relevant to Tesla shareholders. Tesla also received a $US20 million fine, despite not receiving fraud charges.
October 4 and December 9, 2018: Musk takes aim at the SEC
Musk seemed to take aim at the SEC in an October tweet, calling it the “Shortseller Enrichment Commission.”
“Just want to that the Shortseller Enrichment Commission is doing incredible work,” he said. “And the name change is so on point!”
And during an interview with “60 Minutes” that aired in December, Musk said he did not respect the SEC.
“I want to be clear: I do not respect the SEC, I do not respect them,” Musk said when asked about the SEC’s lawsuit against him.
February 19, 2019: Musk tweets a vehicle production estimate
Musk tweeted on February 19 that Tesla would make around 500,000 cars in 2019, after Tesla said in its fourth-quarter earnings letter that it expected to deliver between 360,000 and 400,000 vehicles in 2019. (Musk said during a conference call following the earnings letter that Tesla could deliver up to 500,000 Model 3s in 2019.)
Four hours later, Musk corrected the projection in a new tweet, saying Tesla would by the end of 2019 reach a rate of production that would result in around 500,000 cars if maintained for a full year.
February 25: The SEC accuses Musk of violating their settlement
The SEC said in a court filing that Musk had violated the terms of his settlement with the agency by not receiving approval from Tesla before publishing his tweet about vehicle production. The agency asked a judge to hold Musk in contempt of the federal court that approved the settlement.
March 11: Musk’s attorneys argue that the SEC is overreaching
Musk’s attorneys said in a March 11 response that Musk did not violate the settlement and argued that the SEC was overstepping the bounds of their agreement.
Musk’s settlement with the SEC requires Musk to receive approval from Tesla before tweeting information about the company that could be relevant to shareholders. The February 19 tweet about vehicle production did not meet that criterion, Musk’s attorneys said, since it was close to projections that had already been made.
According to Musk’s attorneys, the SEC was attempting to expand the settlement’s scope to include any of Musk’s tweets about Tesla, regardless of their relevance to shareholders.
“Such a broad prior restraint would violate the First Amendment,” Musk’s attorneys said.
March 18: The SEC fires back
In its response to Musk’s attorneys, the SEC argued that the tweet in question was “a blatant violation” of their settlement because it was relevant to shareholders and because Musk did not get approval from the lawyer at Tesla who was assigned to review his tweets.
That the lawyer set up a meeting with Musk to write the corrected tweet indicates that the first tweet did, in fact, violate the settlement, the SEC said.
“Musk’s contention – that the potential size of a car company’s production for the year could not reasonably be material – borders on the ridiculous,” the agency said. “Musk’s shifting justifications [for tweeting the projection without approval] suggest that there was never any good faith effort to comply with the Court’s order and the Tesla Policy. Rather, Musk has simply elected to ignore them.”
March 22: Musk’s attorneys respond
In a March 22 response to the SEC, Musk’s attorneys said their settlement requires Musk to follow a policy created by Tesla to determine if he needs approval before tweeting about the company. According to Musk’s attorneys, Tesla told the SEC that Musk had followed its communication policy.
Musk’s attorneys also cited Tesla’s first-quarter earnings call, during which Musk said Model 3 deliveries could reach around 500,000 this year, which, when combined with the company’s rate of production for its Model S sedan and Model X SUV, would align Musk’s February 19 projection with prior estimates.
April 4: Oral arguments
Attorneys for Musk and the SEC will make their case before a judge in New York City on Thursday.
While oral arguments are not very common in federal courts, it’s difficult to tell if the judge’s decision to request them has any significance, said Britt Latham, an attorney for Bass, Berry & Sims whose practice includes securities cases.
“I wouldn’t read too much into that,” he said.
The SEC will get the first opportunity to speak, since it filed the motion. Musk’s lawyers will then present their arguments, after which the SEC will likely get to respond, since the burden of proof is on the agency to show that Musk violated their agreement, Latham said.
There’s a chance the judge could arrive at a ruling on Thursday, though the judge is more likely to issue a written opinion in the next two to four weeks, Latham said.
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