- Tesla CEO Elon Musk violated the terms of his agreement with the Securities and Exchange Commission, the agency said in a court filing Monday.
- In a tweet last week, Musk said Tesla would produce 500,000 vehicles this year then later corrected himself and said it would only make about 400,000.
- Tesla acknowledged in a letter that Musk’s first production tweet wasn’t preapproved by the company.
- Under the settlement, Tesla is supposed to preapprove all his communications with shareholders that include “material” information about the company.
Elon Musk’s tweets have gotten him in trouble with the Securities and Exchange Commission again.
The SEC is alleging that Tesla’s CEO misled investors with a tweet last week about the company’s expected vehicle production targets. What’s more, the agency is charging that because Musk didn’t get preapproval of the tweet by Tesla, he’s in violation of the terms of a settlement he and the SEC reached last fall, and asked a judge to hold him in contempt of the federal court that approved that settlement.
“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 said in a filing with the US District Court for the Southern District of New York. “Musk has thus violated the court’s final judgment by engaging in the very conduct that the pre- approval provision of the final judgment was designed to prevent.”
A Tesla representative declined comment on the SEC filing.
On Tuesday afternoon, Musk said on Twitter that Tesla would produce 500,000 cars this year — a number that was far above its previous forecasts. Four hours later, he revised himself, saying that the company actually still estimates it will produce only 400,000 cars this year, but that it expects to be producing them at a 500,000-car rate by the end of the year.
Tesla didn’t preaprove Musk’s tweet
The slip-up seemed problematic, and not just because investors may have traded on the erroneous number Musk gave first. Musk had agreed last fall to have his communications with shareholders — including his tweets — pre-approved by a company lawyer as part of his settlement with the SEC.
In correspondence with the SEC, Bradley Bondi, who represents Tesla as a lawyer for Cahill Gordon & Reindell, acknowledged that Musk hadn’t gotten pre-approval of his first production-related tweet last week, but argued that wasn’t a problem.
“Although the [first] tweet was not individually pre-approved, Mr. Musk believed that the substance had already been appropriately vetted, pre-approved, and publicly disseminated,” Bondi said. “Moreover, the tweet was made outside of NASDAQ trading hours.”
But the SEC was having none of it. The policies Tesla put in place at the agency’s behest as part of last fall’s settlement explicitly require the company to pre-approve all of his communications with shareholders concerning information that’s “material” to the company, the agency said in its filing. Those policies name Musk as a person at the company whose communications need to be preapproved and they state that tweets are among the communications that need preapproval, the agency said. And it was “clear” that the number of cars Tesla would produce this year was material information, it said.
“The provision of the Court’s Final Judgment requiring Musk to obtain pre- approval before publishing written statements containing material information about Tesla is clear and unambiguous,” the agency said.
Musk’s tweet was ‘obviously different’ from Tesla’s prior statements
In his letter, Bondi said Musk thought he was just restating production information the company had released 20 days earlier in its fourth-quarter report. That information — which included the 500,000-car year-end run rate — had been vetted and approved by company lawyers, he said.
But Tesla’s own policies now require communications to be reapproved by its attorneys if they are more than two days old even if they are a verbatim restatement of a previous communique, the SEC said. And Musk’s first tweet wasn’t a verbatim restatement, the agency said.
“Musk’s claim that he thought he was simply restating information from the January 30 communications is not credible,” the agency said. “Musk is the CEO of Tesla and undoubtedly familiar with the details of Tesla’s production projections,” it added, saying that the first tweet was “obviously different” from Tesla’s previously stated production targets.
Even beyond last week’s tweets, Musk hasn’t been making a “good faith” effort to comply with the settlement agreement, the agency said. It pointed to his interview with CBS’ “60 Minutes” in December in which he said the he respects the justice system, he didn’t respect the SEC and his tweets weren’t being reviewed before he posted them. Although that interview took place before the settlement terms took effect, they indicate that Musk had no intention to abide by them, the agency said.
Indeed, there’s no indication that even after the settlement took effect that Musk has “sought or obtained” Tesla’s approval of any of his tweets before he posted them, the SEC said.
“While Musk claims to ‘respect the justice system,’ his deliberate indifference to compliance with this court’s final judgment indicates otherwise,” the agency said.
Musk first got in trouble for his ‘funding secured’ tweets
Musk and Tesla’s settlements with the SEC were an outgrowth of his infamous tweets last August that he had “funding secured” for taking the electric car maker private at a price of $420 a share. The agency charged that the tweets were misleading because he didn’t actually have a funding agreement in place for such a transaction.
As part of the settlements, Musk and Tesla each agreed to pay the SEC a fine of $20 million and to put in place a series of governance reforms and new policies over communications with shareholders.