Tesla Chief Executive Elon Musk has until March 11 to prove to a federal judge in New York why tweets he sent last week don’t violate the terms of an October settlement with the U.S. Securities and Exchange Commission.
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U.S. District Judge Alison Nathan on Tuesday ordered Musk to respond to a federal filing from the SEC that alleged he had violated the settlement by tweeting about the electric-car maker’s 2019 production targets. According to Elliot Lutzker, a former SEC enforcement officer, Musk’s attorneys will put in a response for him with the judge.
Last week, Musk wrote in a tweet that Tesla would produce 500,000 cars in 2019, a figure he later clarified would be closer to 400,000. The SEC determined that the initial tweet was not approved by Tesla before it was sent, according to the filing.
Per the terms of the previous securities charges settlement -- a result of Musk abruptly tweeting in August that he was considering taking Tesla private -- Tesla was required to appoint two new independent directors to its board, in addition to putting into place controls to oversee Musk’s communication. Both Tesla and Musk were also fined $20 million each, a cumulative total of $40 million.
Tesla did not respond to a request for comment, but the billionaire responded to a question on Twitter early Tuesday in which he blasted the federal agency.
“Something is broken with SEC oversight,” he wrote.
Musk and Tesla also tried to defend the tweet by saying the SEC “forgot to read Tesla earnings transcript” -- referring to the company’s fourth-quarter earnings call -- in which he told investors that Model 3 output would reach 500,000 “sometime between Q4 of 2019 and Q2 of 2020.” The SEC, however, argued that there was no “pre-approved written communication” that said Tesla would produce 500,000 vehicles by the end of 2019.
According to Lutzker, who now works for the law firm Davidoff Hutcher & Citron LLP, it’s not necessarily the substance of the tweet that’s problematic -- it’s the fact that Musk didn’t clear it before he hit send.
“It’s interesting, because if you would just look at the face of it of what he did and what he said, it doesn’t strike you as being a very strong case, it’s not fraud or anything like that,” Lutzker told FOX Business. “It is strong in the sense that he just totally ignored the settlement, meaning that he’s supposed to pre-clear all of his tweets when responding to material announcements about the company. It’s a strong case on process, not necessarily on the substance of what he did.”
Now, Lutzker said, the SEC could seek to suspend Musk from serving as CEO of a public company. However, he noted it was “unlikely” since no theft or fraud is involved in the charges; instead, the SEC would slap another hefty fine on Musk and Tesla, particularly because ousting him could hurt shareholders of the company.
“They don’t want to punish the public shareholders because of his trangeressions,” he said.