The lawyers of Tesla CEO Elon Musk shot back at regulators on Monday night, arguing that the Securities and Exchange Commission was broadly overreaching and infringing on Musk's First Amendment rights by seeking to hold him in contempt of court.
Musk had until Monday to explain why he shouldn't be held him in contempt of court over a tweet on Feb. 19, published outside trading hours, which the SEC said violated a September settlement agreement with the unpredictable CEO.
His lawyers disagreed, arguing that the tweets in question complied with the earlier SEC settlement terms. They said the CEO "has dramatically reduced his volume of tweets generally and regarding Tesla in particular," and has been diligent — even self-censoring — in his efforts to comply with the terms of that earlier settlement.
Last September, the SEC sued Musk for a separate tweet on Aug. 7 in which he said Tesla had secured funding needed to take the electric car maker private at $420 a share. That claim wasn't true, and sent Tesla's stock soaring initially. Musk later had to walk back the claims.
After that, and as part of a settlement agreement between them, Musk personally paid a $20 million fine. He also agreed to step down as Tesla chairman and to have an appointed in-house attorney vet his tweets, or any other public statements that could affect Tesla's stock price.
In the recent tweet on Feb. 19 that inspired the contempt proceedings, Musk said, "Tesla made 0 cars in 2011, but will make around 500k in 2019." The SEC said that tweet was not approved according to the terms of the earlier settlement, and was inaccurate.
Musk's frequent and sometimes controversial use of Twitter has raised concerns among investors about his fitness to serve as an officer of a public company. Some former SEC attorneys say the agency could suspend him from serving as Tesla CEO.
In the response filed Monday night, Musk's team said he had taken pains to avoid "unnecessary disputes" with the SEC. They reported that Musk cut his average monthly Tesla-related tweets nearly in half during the three months following his 2018 SEC settlement.
His lawyers also described the SEC's motion for contempt as a vengeful response to comments the Tesla chief made during a "60 Minutes" interview, in which he said: "I want to be clear, I do not respect the SEC. I do not respect them."
Musk's team argued that "this contempt action, following Musk's sincerely-held criticism of the SEC on 60 Minutes, also reflects concerning and unprecedented overreach on the part of the SEC."
His lawyers added: "The SEC's heavy reliance on this interview in its motion for contempt smacks of retaliation and censorship."
The motion to hold Musk in contempt could be part of a larger strategy the SEC is taking to rein Musk in, Britt Latham, an attorney at Bass, Berry & Sims who litigates securities cases, said last week.
"They are building their case," Latham said of the SEC. "If they get a violation here, they could get the court to issue an order that puts some more teeth into the consequences of the next violation. Then at some point, given how unpredictable Mr. Musk is, the agency may assume he will hang himself and give them the opportunity to really take some more serious action."