Tech and Science News
Tesla's Musk must address SEC contempt bid as he calls agency 'broken'
NEW YORK (Reuters) - 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 his fraud settlement with the U.S. Securities and Exchange Commission.
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.
Lawyers for Tesla and Musk did not immediately respond to requests for comment. Tesla did not immediately respond to similar requests. The SEC declined to comment.
Analysts said the renewal of the public battle between Musk and the top U.S. securities regulator will be an overhang on Tesla’s stock, which has lost about one-quarter of its value since peaking in August.
“Another boxing match with the SEC is the last thing investors wanted to see,” wrote Daniel Ives, an analyst at Wedbush Securities who has an “outperform” rating on Tesla.
He called the latest incident “a wild card that could potentially bring this tornado of uncertainty back into the Tesla story until resolved.”
Tesla shares closed 0.3 percent lower at $297.86 on the Nasdaq. They had fallen as much as 3.3 percent earlier.
SEC SAYS TWEETS NOT VETTED
The SEC contempt motion followed Musk’s tweet to his more than 24 million Twitter followers on Feb. 19: “Tesla made 0 cars in 2011, but will make around 500k in 2019,” meaning 500,000 vehicles.
According to the SEC, Musk violated his October 2018 settlement agreement by sending that tweet without first seeking approval from Tesla’s lawyers.
It also said the outlook contrasted with guidance that Tesla had given on Jan. 30 that it would deliver about 400,000 vehicles in 2019.
The settlement resolved an SEC lawsuit over another Twitter post in which Musk said he had “funding secured” to take his Palo Alto, California-based company private at $420 per share.
Musk agreed to step down as Tesla’s chairman, and both he and Tesla agreed to pay $20 million civil fines.
Four hours after his Feb. 19 tweet, Musk corrected himself, saying annualized production would probably be around 500,000 by year end, with full-year deliveries totaling 400,000.
Bradley Bondi, a lawyer for Tesla, had told the SEC in a Feb. 22 letter that Musk thought the substance of his first tweet had been “appropriately vetted, pre-approved, and publicly disseminated.”
POTENTIAL PUNISHMENT
It is not clear what punishment the SEC will seek.
The regulator could seek a higher fine, further restrictions on Musk’s activities, or removal of him from Tesla’s board.
Alternatively, it could seek to ban Musk from being a public company officer, which would force him to step down as Tesla’s chief executive.
It also is not clear how Musk’s public criticism of the SEC might weigh on his fate.
The criticism continued on Tuesday, when Musk tweeted in the early morning: “Something is broken with SEC oversight.”
That followed his Monday night tweet, after the contempt motion was filed, that the “SEC forgot to read Tesla earnings transcript, which clearly states 350k to 500k,” and added: “How embarrassing.”
Musk appeared to be referring to his Jan. 30 comment to analysts that Tesla would produce “maybe on the order of 350,000 to 500,000 Model 3s, something like that this year.”
Criticizing the SEC is nothing new for Musk.
He has called the regulator the “Shortseller Enrichment Commission,” recalling his attacks against hedge funds and other investors who sell Tesla stock short, hoping it will fall.
And in a December interview with CBS’s “60 Minutes,” Musk said he did not have respect for the SEC. He also said his tweets had not been reviewed in advance since the settlement.
Reporting by Jonathan Stempel in New York and Vibhuti Sharma and Medha Singh in Bengaluru; Editing by Chizu Nomiyama and Matthew Lewis
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