A federal judge overseeing a legal settlement between the Securities & Exchange Commission and Tesla CEO Elon Musk wasted little time in saying she’ll allow the regulator to respond to “new factual assertions” made by the colorful billionaire’s lawyers. Musk’s representatives argued that an inaccurate tweet about the electric-car maker’s production plans didn’t violate terms of the agreement.
SEC attorney Cheryl Crumpton asked for Judge Alison Nathan’s permission to “file a reply memorandum of no more than 15 pages by no later than March 19, 2019, in order to respond to new factual assertions and legal arguments” raised by Musk’s lawyers, in a filing Tuesday. Nathan granted the request about an hour after it was filed, and also gave each party until March 26 to request a "evidentiary hearing" on the matter, without indicating when she’ll make a determination in the case.
The SEC last month asked Nathan to find Musk in contempt of the October 2018 settlement after it confirmed that his February 19 tweet (which Musk corrected four hours later) wasn’t vetted in advance by Tesla lawyers, as terms of the deal require. Attorneys for Musk argued in their March 11 court filing that the tweet didn’t contain material information since the production figures were essentially revealed in Tesla’s fourth-quarter earnings materials and during its January 30 conference call.
“Musk correctly used his discretion to determine that his 7:15 pm tweet was not material and did not contain information that could reasonably be considered material,” his defense team said. “Second, even if Musk were incorrect in his judgment that the tweet was not nor reasonably could be considered material—a view shared by Tesla and reflected by the market’s nonreaction—he cannot be held in contempt unless there is evidence that he did not diligently attempt to comply with the Order.”
The ongoing case in the U.S. Court for the Southern District of New York was sparked by Musk’s self-inflicted social media wounds—namely, tweeting in August 2018 about “funding secured” to take Tesla private that turned out to be inaccurate. The SEC didn’t ask for a specific punishment in its February filing, though the regulator had sought Musk’s removal as Tesla CEO and chairman in a lawsuit it filed in September 2018 claiming the privatization tweet was an attempt at stock-price manipulation.
He kept his management job, but the settlement forced him to give up the chairman role, pay a combined $40 million of fines with Tesla, add two independent directors to the company’s board and agree to have social media posts containing material Tesla information reviewed in advance by company lawyers.
Musk’s tweet, that “Tesla made 0 cars in 2011, but will make around 500k in 2019,” was inaccurate and was later updated: “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.” And though not as erratic as some past tweets (such as when he accused a critic of being a pedophile), it came after a December interview with CBS' 60 Minutes in which he claimed no one at Tesla was checking his tweets in advance and declared his disdain for the SEC. “I want to be clear. I do not respect the SEC. I do not respect them,” he told interviewer Lesley Stahl.
That interview “destroys, or at least substantially damages, his credibility,” Peter Haveles, a partner at the law firm Pepper Hamilton LLP, who’s argued cased in Nathan’s court, told Forbes last month. “It just says ‘I don’t respect the process, I have no desire to comply.’”