SEC Asks Judge to Hold Elon Musk in Contempt for Tesla Boasts

Elon Musk speaking to a Tesla audience
Kevork Djansezian/Getty

The SEC has asked a federal judge to hold Tesla CEO Elon Musk in contempt over his recent production boasts, claiming the embattled CEO has “not made a diligent or good faith effort” to comply with the settlement he agreed to.

Marketwatch reports that the SEC requested that a federal judge hold Tesla CEO Elon Musk in contempt after the CEO tweeted: “Tesla made 0 cars in 2011, but will make around 500k in 2019.” A few hours later, Musk corrected himself: “Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week. Deliveries for year still estimated to be about 400k.”

In response to this, the SEC said in court documents filed on Monday: “He once again published inaccurate and material information about Tesla to his over 24 million Twitter followers, including members of the press, and made this inaccurate information available to anyone with internet access.” The SEC further said that both Musk and Tesla confirmed that his tweets had been pre-approved by the company.

“Musk has not made a diligent or good faith effort to comply with the provision of the court’s final judgment requiring pre-approval of his written communications about Tesla,” the SEC stated. “While Musk claims to ‘respect the justice system,’ his deliberate indifference to compliance with this court’s final judgment indicates otherwise.”

In a tweet following the filing, Musk claimed that he had previously mentioned the numbers he had tweeted on an earnings call, stating: “SEC forgot to read Tesla earnings transcript, which clearly states 350k to 500k. How embarrassing …” In another tweet Musk stated: “Something is broken with SEC oversight.” However, the stock market appears to be taking the issue slightly more seriously than Musk with Tesla stock trading down by nearly 2.5 percent in after-hours trading.

It appears that the federal judge in the case is taking the situation very seriously, ordering Musk to explain why he should not be held in contempt of court by March 11th. CNBC reports:

A federal judge on Tuesday ordered Tesla Inc Chief Executive Elon Musk to explain by March 11 why he should not be held in contempt for violating a settlement agreement with the U.S. Securities and Exchange Commission.

U.S. District Judge Alison Nathan in Manhattan issued her order one day after the SEC asked that Musk be held in contempt over tweets he made on Feb. 19 concerning Tesla’s 2019 production outlook. (Reporting by Jonathan Stempel in New York Editing by Chizu Nomiyama)

Wedbush analyst Dan Ives commented on the situation in an investors note stating:

With Tesla/Musk settling with the SEC in October this black cloud was in the rear view mirror for the company (and investors) and now this latest tweet (which most investors shrugged off at the time) represents a wild card that could potentially bring this tornado of uncertainty back into the Tesla story until resolved. At this point we are more concerned around this issue being another distraction for Musk & Co. as the company navigates one of its most challenging periods in its history and certainty did not need this news.

Recently Dane Butswinkas, Tesla’s general counsel, who was hired to the company just over two months ago, announced that he will return to his law firm Williams and Connolly where he previously worked for almost 30 years. The announcement came immediately following the tweets the SEC has taken issue with. Butswinkas stated that he looks forward to returning to Washington and to advising Tesla as outside counsel as he had previously done in the past. His departure came immediately after Elon Musk made a range of promises about future products and vehicle production levels both on a podcast and on Twitter. The SEC settlement following Musk’s infamous “funding secured” tweet included requirements for company controls on his tweets related to Tesla’s future guidance and output levels.

Tesla’s own CFO Deepak Ahuja also announced his departure from the company following the release of Tesla’s fourth-quarter earnings. Oppenheimer analyst Colin Rusch commented on Ahuja’s departure stating:

Certainly, we don’t like to see the turnover that we’ve seen with senior management with Deepak Ahuja leaving and the general counsel. That is not a great sign for the stability of the organization. We do think that there’s enough management depth to keep this thing going, and certainly a big enough window in terms of the competitive environment for them to continue to take share of the market. But the volatility in the staff and the news flow is certainly a concern for us.

Former SEC Chairman Harvey Pitt appeared on CNBC where he discussed the situation and stated his belief that the SEC is doing the right thing saying:

We’ve got a CEO who, I guess for want of a better word, is irrepressible. He needs to have a certain amount of repression of his instinctive drive to go to Twitter. So I think that holding him in contempt, fining him, and leaving him with strict instructions that if this continues, the punishment will be worse would be in order. At least that’s what I would do under the circumstances.

The LA Times published a column recently questioning if Musk was attempting to commit “suicide by SEC,” by consistently antagonizing the government agency. The column reads:

The most pressing question swirling around Musk’s behavior is: Why?

By failing to comply with the mandates of his legal settlement, he’s challenging the authority of the SEC and the federal judge who approved it. Does he expect them to take this sitting down? If they don’t, then the consequences for him and Tesla could be dire, including his removal from management.

Or does his determined antagonism of the SEC have another motivation? One wouldn’t want to link Musk’s behavior too closely to those poor souls who try to goad police officers into shooting them, since losing one’s job isn’t comparable to losing one’s life. But what rationale could there be for antagonizing an agency that has all the power in this relationship?

Musk has expressed frustration with the pressures of running Tesla and managing its production in the past. Is it possible that, consciously or subconsciously, he’s looking for an escape that he can blame on someone else?

Of more concern to Tesla investors: What if he knows something they don’t know about the company’s financial future — and is hoping to hang any failure on the nasty, overreaching regulators rather than his own dubious management skills?

This isn’t the place for psychoanalysis. But the Tesla board needs to take Musk in hand, and stage an intervention.

As Tesla faces a $920 million debt bond due at the end of this month and the company’s CEO faces the possibility of being held in contempt of court, the company is in for a stressful few weeks.

Lucas Nolan is a reporter for Breitbart News covering issues of free speech and online censorship. Follow him on Twitter @LucasNolan or email him at lnolan@breitbart.com

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