Tesla’s fortunes spin after SEC accuses CEO Elon Musk of violating a tweet deal

Tesla’s fortunes spin after SEC accuses CEO Elon Musk of violating a tweet deal

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Tesla CEO Elon Musk’s Twitter habit has sparked gyrations in the stock market. (Tesla via YouTube)

Tesla CEO Elon Musk is in trouble again with the Securities and Exchange Commission, this time over a 13-word tweet.

The SEC filed a motion in federal court on Monday, claiming that a tweet that Musk sent out last week violated the terms of an agreement aimed at settling a securities fraud case brought last September. After the motion came to light, Tesla’s shares lost as much as 5 percent of their $298.77 market-close value in after-hours trading. The price crept back to somewhere around its previous level overnight, however, as traders digested the news.

It’s the latest in a series of ups and downs (or, more accurately, “downs and ups”) caused by Musk’s Twitter habit.

Read the PDF: Check out SEC’s motion against Elon Musk

Under the terms of last year’s agreement, Musk was supposed to have all of his Twitter comments pre-approved by Tesla’s designated representative if they touched upon “information material to the company or its shareholders.”

That provision was meant to head off tweets like the one that Musk sent out last August, claiming that he had “funding secured” to take Tesla private even though that wasn’t actually the case. That claim and its aftermath sparked wild gyrations in the market, leading the SEC to open its fraud investigation.

The agreement also required Musk to step down from his post as Tesla’s chairman and pay a $20 million fine. Tesla was also fined $20 million, and was forced to appoint two new independent directors to its board.

The seeming resolution of the SEC case, plus Tesla’s profit-generating increase in production for its Model 3 electric car, sent Tesla’s share price as high as $376. But Musk touched off a new round of regulatory trouble on Feb. 19 when he talked about the production outlook for this year:

Tesla made 0 cars in 2011, but will make around 500k in 2019

— Elon Musk (@elonmusk) February 20, 2019

That claim was amended a little more than four hours later:

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

The SEC seized on the initial tweet, and within days investigators were asking Tesla whether the tweet had been pre-approved. In court filings (which Tesla had sought to make confidential), Bradley Bondi, a lawyer for Tesla, acknowledged that the first tweet had not been specifically pre-approved. Instead, it “was intended to recapitulate the information set forth” in forward-looking statements that were made by Tesla and Musk in January, in connection with year-end results.

“Mr. Musk believed that the substance had already been appropriately vetted, pre-approved, and publicly disseminated,” Bondi wrote.

The substance wasn’t quite the same, though. Back in January, Tesla said it was aiming to hit a goal of turning out about 10,000 cars a week sometime between the end of 2019 and the middle of 2020, or an annualized rate of roughly 500,000 a year, assuming that no snags arose in its plans for expansion in China.

That’s not exactly what Musk said in the first tweet. Bondi said Tesla’s designated tweet-checkers realized that, and so they hammered out the wording of the second tweet as a clarification.

Read the PDF: Check out Tesla’s response to SEC

For what it’s worth, on the day after the tweet, Tesla’s general counsel, Dan Butswinkas, announced that he was leaving the company after spending only two months on the job. Jonathan Chang, vice president of Tesla’s legal department, took over Butswinkas’ position.

The SEC said the fact that Musk didn’t get pre-approval of the wording for the “evidently inaccurate” first tweet was a violation of the agreement. As a result, the SEC is calling on Musk to show cause why he should not be held in contempt of the court’s judgment from last September.

“A violation need not be willful in order to find contempt,” the SEC wrote in its motion to U.S. District Court in the Southern District of New York, where the original judgment was filed.

The SEC also cited an interview with Musk that aired on CBS’ “60 Minutes” TV show last December as evidence that he wasn’t taking the agreement’s requirements seriously. Back then, Musk acknowledged that none of his tweets had been “censored” since the settlement.

“I guess we might make some mistakes,” he told CBS’ Lesley Stahl. “Who knows? … Nobody’s perfect.”

Musk went on to say that “I do not respect the SEC … I do not respect them” — but would abide by the settlement “because I respect the justice system.”

Now it’s up to the justice system to decide whether to take Musk to task over an ill-turned tweet.

U.S. District Judge Alison Nathan gave Musk a March 11 deadline to explain why he shouldn’t be held in contempt. If Nathan rules that the violation is serious enough, Musk could face further limitations on his activity at Tesla … or on Twitter.

In a follow-up Twitter exchange, Musk signaled that he intends to stick to his guns:

SEC forgot to read Tesla earnings transcript, which clearly states 350k to 500k. How embarrassing …

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