It pointed to his Twitter activity last week, in which he posted an aerial picture of thousands of new Tesla vehicles, and followed that by saying he expected the firm to make 500,000 cars in 2019.<doc-sep>At the center of the SEC’s current complaints are tweets Musk sent last week about the production levels at the company. On Feb. 19, Musk said on Twitter that Tesla would make about 500,000 cars this year. Four hours later, Musk sent another tweet that clarified that he “meant to say” the company’s weekly production rate would equal up to about 500,000 on an annual basis but that the total car deliveries this year would be closer to about 400,000.<doc-sep>When Elon Musk last week on Twitter said Tesla Inc. would build 500,000 vehicles this year, only to clarify himself a few hours later, it set off alarm bells inside the regulator he had been goading for months. Officials at the Securities and Exchange Commission had quietly watched as the chief executive seemed to flout the terms of his October settlement, which required the electric-car maker to scrutinize all of Mr. Musk’s Twitter messages that might affect the company’s stock—such as predicting how many cars Tesla might make in a year. His clarification on Twitter on the evening of Feb. 19 raised questions within the SEC about whether he was following the rules, setting off a chain reaction and again thrusting Tesla into uncertainty as it tries to ramp up production of its bet-the-company Model 3 sedan, expand deliveries in Europe and China and service a growing list of customers. The next day, Feb. 20, SEC officials contacted the company and asked whether anyone had approved the tweets. The answer came back last Friday, when a lawyer for Tesla acknowledged in a letter to the SEC that the first tweet wasn’t approved. Another Tesla lawyer helped write the clarifying tweet, according to the letter, which was made public as part of an SEC court filing Monday. Tesla’s lawyers defended the tweets, saying Mr. Musk didn’t think he needed approval for them because his comments simply repeated statements made during an earnings update on Jan. 30. SEC officials had already been worried that Mr. Musk didn’t take the settlement terms seriously, according to a person familiar with the matter. After reaching his deal with the SEC last year, he belittled the agency several times on Twitter, including one message that called it the “Shortseller Enrichment Commission.” From the Archives The SEC filed a lawsuit against Elon Musk for securities fraud over a market-moving tweet in August about possibly taking Tesla private. The news is just the latest development in a tumultuous year for the CEO. Photo illustration: Heather Seidel/The Wall Street Journal (Originally published Sept. 27, 2018) But it was an interview that aired on Dec. 9 on the CBS News show “60 Minutes” that fueled SEC officials’ suspicions, the person said. As part of its settlement, the SEC had required Tesla to implement a host of procedures, including oversight of all of Mr. Musk’s public communications. Tesla had until Dec. 28 to implement them. Mr. Musk had said on CBS that no one at Tesla routinely reviewed his social-media messages, and that he and Tesla might “make some mistakes” in the process of tweeting. He added that he wanted “to be clear. I do not respect the SEC.” Shortly after the interview aired, on Dec. 11, Tesla enacted a new vetting policy for written public comments from Mr. Musk and any executive. The two-page policy stated executives must receive preapproval for any written communications that could contain material information, such as business projections. Tesla’s general counsel and its lawyer overseeing investor disclosures were required to review social media and talking points and scripts prepared for earnings calls or interviews. If Tesla’s top lawyer wasn’t available, then the CFO was included. In the roughly two months since Tesla’s enacted its policy, the team responsible for oversight has been in flux. Tesla’s longtime CFO, Deepak Ahuja, announced his retirement on the Jan. 30 earnings call. Dane Butswinkas, a veteran trial lawyer who joined Tesla as its general counsel days after the “60 Minutes” interview, had planned to leave ahead of the Feb. 19 tweet in a culture clash. That departure was announced the following morning. In fact, Mr. Musk’s tweet appears to have violated Tesla’s own policy. He is required to seek preapproval of messages if the content had previously been approved more than two days prior. Tesla’s lawyers told the SEC that Mr. Musk didn’t seek preapproval for this Feb. 19 tweet because Mr. Musk believed the substance had already been vetted and publicly disseminated. Tesla declined to comment and didn’t make Mr. Musk available. Mr. Musk didn’t respond to requests to comment. Tesla shares fell 0.3% Tuesday. To the SEC, the tweets crossed a bright line. SEC officials believed they showed that Mr. Musk was neglecting requirements imposed upon him by a federal judge. The SEC’s staff decided to file a motion in federal court seeking to have him held in contempt, a step that could be taken quickly and didn’t require a vote of the agency’s commissioners. The SEC rarely goes back against defendants over claims they disobeyed the terms of enforcement settlements or court judgments. “Most of the time, people do in fact comply,” said Urska Velikonja, a law professor at Georgetown University who specializes in SEC enforcement. “They have to take this step. This is a public figure who has vocally and affirmatively taken them on.” Contempt proceedings are used to compel a defendant to follow a court’s demands. Judges sometimes order a defendant to jail if the person willfully defies the court’s instructions, with the understanding they can be freed as soon as they fall in line. Jail time appears remote, according to legal experts, because Mr. Musk corrected his tweet and apparently hasn’t continued to violate the policy. Mr. Musk’s earlier settlement could be cast aside, exposing him to different and worse penalties, if he proves as provocative in court as he is sometimes on social media, legal experts said. On Tuesday, U.S. District Judge Alison Nathan told Mr. Musk he has until March 11 to respond to the SEC’s claims. The SEC argues Mr. Musk announced new information in the Feb. 19 tweet: the number of cars Tesla would build in 2019. In its court filing, the SEC said the CEO’s claim that he simply restated an earlier disclosure “is not credible.” In Tesla’s Jan. 30 quarterly shareholder letter, Mr. Musk wrote that Tesla planned to deliver as many as 400,000 vehicles in 2019. He also stated that Tesla targeted producing more than 500,000 Model 3s on an annualized basis as soon as the fourth quarter.<doc-sep>Elon Musk’s need to tweet has gotten him in trouble once again. Photo: Robyn Beck/Bloomberg via Getty Images As someone addicted to the brain poison that is Twitter, the most relatable thing about Elon Musk, to me, is his inability to stop tweeting, despite the severe personal and professional harm his tweets have incurred upon him. Musk has been in the penalty box ever since settling a lawsuit brought against him by the SEC over a tweet he sent in August of 2018: Am considering taking Tesla private at $420. Funding secured. — Elon Musk (@elonmusk) August 7, 2018 Tesla’s stock price shot up after the the tweet, but it turned out that Musk did not have funding secured. Under U.S. securities law, it’s illegal for the CEO to offer up misleading, market-moving information, and the SEC hit Musk with a lawsuit. Musk and Tesla settled with the SEC, and part of the agreement required Musk to get “preapproval” from Tesla lawyers before publishing any potentially market-moving statements, something he failed to do before tweeting this on February 19: Tesla made 0 cars in 2011, but will make around 500k in 2019 — Elon Musk (@elonmusk) February 20, 2019 He then followed up with this clarification, saying the number would be closer to 400,000. Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week. Deliveries for year still estimated to be about 400k. — Elon Musk (@elonmusk) February 20, 2019 When the SEC got up in arms, Musk mocked them, saying they must have somehow missed all of this information on Tesla’s earnings call, which gave a range of possible production numbers, from as low as 350,00 to as high as 500,000. SEC forgot to read Tesla earnings transcript, which clearly states 350k to 500k. How embarrassing … 🤗 — Elon Musk (@elonmusk) February 26, 2019 But the issue at hand isn’t whether Musk was right or wrong in any of his previous tweets or even if the tweets caused the markets to move; it’s whether Musk and Tesla were upholding their agreement for Musk to obtain preapproval from Tesla’s lawyers. Per the SEC and Tesla’s own admission, he did not. On Monday, the SEC asked a judge to hold Musk in contempt for violating the terms of his agreement with the SEC: Musk has not made a diligent or good faith effort to comply with the provision of the Court’s Final Judgment requiring pre-approval of his written communications about Tesla. Less than two months after the Court entered its Final Judgment, Musk publicly indicated that he was not serious about compliance with this provision. […] In fact, in response to the SEC’s February 20 request for information, Musk and Tesla state that, since Tesla’s Policy was implemented in December 2018, Musk’s tweets have been reviewed after their publication, but there is no suggestion that Musk has sought or obtained pre-approval of any tweet prior to publishing it. News of the SEC filing sent Tesla’s stock price crashing by 3 percent before the markets closed on Monday, and then fell another 5 percent in after market trading. Undeterred, Musk was still at it this morning, continuing to tweet his disdain for the SEC: Exactly. This has now happened several times. Something is broken with SEC oversight. — Elon Musk (@elonmusk) February 26, 2019 The potential consequences for Musk and for Tesla are very real. The SEC could seek further fines from Musk and Tesla — both Musk and Tesla have already paid $20 million in fines apiece for his August tweet. It could also seek to further restrict Musk’s ability to use of Twitter and other social media platforms. The biggest stick the SEC wields is the power to bar Musk from running a publicly traded company — a nearly unprecedented step, but Musk and the SEC are in unprecedented territory. “They have to view the conduct as akin to another violation of securities laws to take this step,” said Brad Bennett, a former head of enforcement at the Financial Industry Regulatory Authority who previously worked as an SEC enforcement attorney, speaking to Bloomberg. “It’s a very novel situation where someone is running an enterprise with this kind of market cap and gives the SEC cause for concern that the person is not capable of following the securities laws.” Tesla boosters can point to all the ways Musk’s being a one-of-a-kind CEO has benefited Tesla — his outsize ambitions have spurred both Tesla and the electric vehicle industry in general to go further and faster than it would have otherwise. But one of the basic requirements of being a CEO is following securities law. If Musk can’t manage to find a way to do that, he may not remain CEO for much longer.<doc-sep>
Tesla (TSLA) stock went down 5% last night after investors panicked over the SEC trying to hold Elon Musk in contempt of his settlement deal over a tweet. Now, the automakers stock has erased the losses today as it appears that the SEC could be overreaching by going after Musk for the tweet. Yesterday, the SEC asked a judge to hold Musk in contempt for violating one of the terms of the settlement of SEC’s complaint against Musk over his “funding secured” comment about his attempt to take Tesla private. The SEC settlement requires that Musk gets pre-approval for tweets that “reasonably could contain material information” that could move the stock. Elon Musk TSLA Tweets Last week, Musk tweeted last week that Tesla will make 500,000 cars in 2019 before correcting himself saying that it will be the production rate at the end of the year. The SEC thinks that the tweet violates the settlement even though Musk made similar comments about Tesla’s Model 3 production during the last earnings call a few weeks prior: SEC forgot to read Tesla earnings transcript, which clearly states 350k to 500k. How embarrassing … 🤗 — Elon Musk (@elonmusk) February 26, 2019 After the SEC filing to hold Musk in contempt, U.S. District Judge Alison Nathan has now asked Musk to file a brief to make his case that it doesn’t constitute a violation of his settlement by March 11. Tesla’s CEO has been tweeting that there’s “something broken” with the SEC for coming after him: Exactly. This has now happened several times. Something is broken with SEC oversight. — Elon Musk (@elonmusk) February 26, 2019 Musk previously said that he has “no respect” for the SEC and he alluded on several occasions that he believes the agency is working to help the shorts betting against Tesla. Electrek’s Take Like I wrote yesterday, this is stupid. I think Musk has a strong case that the SEC is overreaching here even though I admit that there’s a difference between a guidance of 350,000 to 500,000 units and simply 500,000 units. That said, even if there’s a difference, he corrected it quickly and it’s simply not a reason for a federal agency tasked to stop market manipulation to go after him in court. The stock didn’t move based on Musk’s tweet and it moved a lot on the announcement that the SEC was going after him. Maybe they should investigate themselves? But seriously, this is so dumb. Now it’s obvious why Elon has no respect for the SEC. There are so many obvious market manipulation and pump-and-dump schemes out there and instead, they decide to go after Tesla and Elon for some tweets. FTC: We use income earning auto affiliate links. More. Subscribe to Electrek on YouTube for exclusive videos and subscribe to the podcast.