SEC says Elon Musk violated settlement agreement

Ann Santiago
February 27, 2019

At time of publication, Tesla's stock was trading down 3.6 percent to $288.02 per share.

However, the rocket baron appeared not to have learned from the experience, taking to Twitter on 19 February to say: "Tesla made 0 cars in 2011, but will make around 500k in 2019". And the SEC argues the tweet ran afoul of an October settlement requiring Musk to seek pre-approval from Tesla lawyers before tweeting out potentially market-moving information.

Mr Musk subsequently clarified his tweet to say that the "annualised production rate" at end-2019 would probably be about 500,000, with deliveries expected to be about 400,000.

On Feb. 19, Musk tweeted that the company would make about 500,000 cars this year. The agreement also saw Tesla and Musk each pay $20m to the SEC, and the rant-prone boss step down as the Tesla's chairman.

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".

It's the latest in a series of ups and downs caused by Musk's Twitter habit.

Most important Tesla's policy required Musk to "re‐confirm the pre‐approval" if more than two days have passed since the original approval was granted-and the settlement required Musk to follow the policy.


"Musk has thus violated the Court's Final Judgment by engaging in the very conduct that the preapproval provision of the Final Judgment was created to prevent", the SEC wrote in its motion filed on Monday (local time) in federal court in Manhattan.

The company's attorneys stressed that Tesla and Musk take seriously their responsibility under the settlement reached with the SEC past year to review communications about securities issues made through Twitter and other social media. However, this could still be taken as a violation due to the information having potential material effect to Tesla shareholders.

The SEC contempt motion followed Musk's tweet to his more than 24 million Twitter followers on February 19: "Tesla made 0 cars in 2011, but will make around 500k in 2019", meaning 500,000 vehicles.

"It's very clear that the SEC is not happy with Musk", said Stephen Diamond, an associate professor of law at Santa Clara University who specializes in corporate governance.

Musk responded, "I guess we might make some mistakes". "Who knows? ... Nobody's ideal".

The order by U.S. District Judge Alison Nathan in Manhattan came hours after the billionaire criticized SEC oversight as "broken", in the wake of the regulator's request on Monday night that he be held in contempt.

"While Musk claims to 'respect the justice system, ' his deliberate indifference to compliance with this court's final judgment indicates otherwise", the agency said.

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