Tech

SEC asks judge to hold Tesla CEO Elon Musk in contempt for violating deal

Key Points
  • The CEO said that Tesla would make "around" 500,000 vehicles this year, clarifying about four hours later that he "meant to say" the company's annualized production rate at the end of 2019 could be around 500,000 vehicles.
  • "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 wrote in the court filing.
  • Musk has until March 11 to explain to the court why he should not be held in contempt, according to an order filed Tuesday.
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Shares of Tesla fell Tuesday after the Securities and Exchange Commission asked a judge to hold Elon Musk in contempt for violating its settlement deal.

The stock fell as much as 3 percent before paring losses to close a just a fraction of 1 percent down.

The SEC cited an "inaccurate" February 19 tweet about production, Bloomberg first reported. On that date, Elon Musk tweeted — then revised — projections for full-year Tesla manufacturing numbers.

The CEO said that Tesla would make "around" 500,000 vehicles this year, clarifying about four hours later that he "meant to say" the company's annualized production rate at the end of 2019 could be around 500,000 vehicles — or a production rate of 10,000 cars per week. Total deliveries for the year are still estimated at 400,000, Musk said.

The next day, Tesla general counsel Dane Butswinkas left his post, to be replaced by former vice president of legal Jonathan Chang.

"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 wrote in the court filing.

The Tesla chief responded to the SEC decision hours later, tweeting: "SEC forgot to read Tesla earnings transcript, which clearly states 350k to 500k. How embarrassing ..."

But he quickly added in another tweet: "Indeed. I have great respect for judges. It's not perfect, but, in general, we should be very glad of the US justice system."

On Tuesday morning, Musk lashed out at the SEC.

"Something is broken with SEC oversight," he said on Twitter.

Musk has until March 11 to explain to the court why he should not be held in contempt, according to an order filed Tuesday.

Previously, the SEC settled charges with Musk and Tesla over the CEO's aborted bid to take the company private last fall, with the billionaire remaining at the helm of the company but relinquishing his chairman title and getting slapped with a $20 million fine. As part of the settlement, Musk was supposed to get pre-approval for future tweets.

However, the SEC writes, "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."

It took two days for Tesla to answer the SEC's questions about Musk's tweets, the filing says.

The agency concludes, "For all the reasons stated, the SEC respectfully requests that the Court enter an order to show cause why Defendant Elon Musk should not be held in contempt of the Court's October 16, 2018 Final Judgment."

The SEC's enforcement action is the next step in a saga which began in early August, when Musk announced via Twitter that he had secured enough funding for a massive private buyout of Tesla. The SEC complaint alleged that in doing so, Musk issued "false and misleading" statements, and failed to properly notify regulators of material company events.

"This matter reaffirms an important principle embodied in our disclosure-based federal securities laws," SEC chairman Jay Clayton said in a statement in September.

"Specifically, when companies and corporate insiders make statements, they must act responsibly, including endeavoring to ensure the statements are not false or misleading and do not omit information a reasonable investor would consider important in making an investment decision," Clayton added.

Tesla did not comment on the filing, but as noted above, Musk tweeted about the SEC directly on Tuesday morning. On Monday night after the news, he also took a shot at the regulatory agency.

It is not known whether these tweets were pre-approved.

Read the full court filing here: