Elon Musk, the Chief Executive Officer of Tesla, and the Securities and Exchange Commission have requested a week’s delay in their efforts to resolve their contempt of court dispute. Both parties announced their request in a joint submission to federal court judge Alison Nathan on Thursday (April 18, 2019).
In the joint submission, the parties states that, “While we have not reached an agreement, counsel for the SEC, Mr. Musk, and counsel for Tesla met and conferred for over an hour by telephone earlier this week and are continuing to discuss potential resolution. Because our discussions are ongoing, we respectfully request to provide the Court with another joint submission on or before April 25, 2019, indicating whether we have reached an agreement in principle.”
The prayer for extension was made in relation to a court order by Judge Nathan on April 4 that gave Musk and SEC two weeks in working out their differences. These differences, in turn, stemmed from the original request of the SEC to hold Elon in contempt of court for his alleged violation of a September 29, 2018 securities fraud settlement.
The settlement was made as a consequence of Musk’s tweet about getting funding to take Tesla private at $420 per share. The SEC claimed in its original lawsuit that Musk made “false and misleading statements” regarding Musk’s prospects in making Tesla, a publicly-traded company, a privately-held company.
Judge Nathan has previously said that she has “serious concerns” that regardless of her decision, the issues won’t be resolved. She also ordered both parties to put on their “reasonableness pants” to work on a solution. She also expressed surprise over the SEC lawyers’ action for seeking a contempt of court ruling as its first response to Elon’s tweet.
Judge Nathan has also said that a decision will be issued if Musk and the SEC don’t resolve their differences within the period allotted. She further added that, “Contempt of court is serious business” and she doesn’t “take it lightly”.
The contempt of court filed by the SEC was in relation to a controversial tweet by Musk, a well-known technology and electric car billionaire. In his February 20, 2019 tweet, Musk said that, “Tesla made 0 cars in 2011, but will make around 500k in 2019.”
While the tweet seems harmless enough, it wasn’t so according to the SEC. In its show-cause motion, the SEC through its lawyers said that, “Musk did not seek or receive pre-approval prior to publishing this tweet, which was inaccurate and disseminated to over 24 million people.” It added that, “Musk has thus violated the court’s final judgment by engaging in the very conduct that the pre-approval provision of the final judgment was designed to prevent.”
The SEC further said that Musk and Tesla appeared to acknowledge that it was a problematic tweet when Musk made a follow-up tweet four hours after his original tweet. In it, Musk wrote, “Meant to say annualized production rate at end of 2019 probably around 500k, i.e. 10k cars/week. Deliveries for year still estimated to be about 400k.”
During the hearing on Thursday, lawyers for Musk and the SEC gave their arguments about whether these tweets were a violation of the securities fraud settlement. In it, Judge Nathan approved the terms of settlement between the two parties.
The terms included Tesla hiring a lawyer to oversee Musk’s written communications including his social media posts (e.g., tweets). Said lawyer have to pre-approve any and all of Musk’s communications that could have a material bearing on Tesla’s stock price or contain material information relevant to Tesla and its shareholders.
Other terms of the agreement included neither Tesla nor Musk publicly denying or admitting any of the charges named on the lawsuit filed by the SEC. Musk also has to resign as chairman of Tesla and he cannot be its chairman for three years while Tesla has to appoint two independent directors to Tesla’s board. Musk’s resignation is the first time that he won’t be leading Tesla’s board of directors since 2004 when he first took the post.
Both Musk and Tesla also have to pay $20 million in fines each that, according to the SEC, will be “distributed to harmed investors” in accordance with a pre-approved court process.
Musk said that he was “very happy” and “very impressed” with Judge Nathan’s analysis. In an official statement issued after the Thursday hearing, he said, “The tweet in question was true, immaterial to shareholders, and in no way a violation of my agreement with the SEC. We have always felt that we should be able to work through any disagreements directly with the SEC, rather than prematurely rushing to court. Today, that is exactly what Judge Nathan instructed.”
With the new dispute between Musk and the SEC, perhaps Musk would be more careful in his tweets and other social media posts and media announcements. Perhaps, too, President Donald Trump would also follow his lead despite no regulatory bodies acting on his tweets.
