SEC Slams Musk For Failing to Adhere To Tweet Approval Rule

Irving Hamilton
March 20, 2019

Musk's lawyers also argued that the SEC's motion for contempt is an over-reach that exceeds its authority.

Last month, The Securities and Exchange Commission has asked a judge to hold Elon Musk in contempt for violating a deal the regulator struck with the Tesla chief executive previous year, which requires him to get the approval of the Tesla board of directors before tweeting anything that could "be material to investors".

An agreement struck last September between Musk and the SEC forbade the CEO from using social media to divulge information that would be considered material to investors or Tesla without having gotten prior approval. The agency said Musk's argument that tweeting about auto production forecasts wasn't material information "borders on the ridiculous".

The SEC asked Tesla in late February whether any of Musk's tweets had been pre-approved since he agreed to that policy in the settlement, according to the filing in federal court in Manhattan. Recent tweet topics have included "vehicle tax credits and pricing", "plans for expansion of charging stations internationally", "construction and production plans for a new Shanghai factory", "whether Tesla plans to phase out its Model S and Model X vehicles in the future", and others. But Musk didn't have the funding secured.

"The pre-approval requirement was created to protect against reckless conduct by Musk going forward", SEC lawyers wrote in a filing Monday (see below).

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The Securities and Exchange Commission, in a court filing on Monday, said a tweet Elon Musk published in February was a "blatant violation" of a $US40 million court settlement that requires Tesla to appoint a "Twitter czar" who would vet his tweets for information material to the company before publishing.

"Such brazen disregard of this court's order is unacceptable and unworkable going forward", the SEC said in the filing. The SEC called the revelation "stunning".

"As long as a statement submitted for pre-approval is not false or misleading, Tesla would presumably approve its publication without any restraint on Musk".

Also on Monday, a lawyer for Musk responded to the SEC's filing by requesting permission to file another brief in response with a proposed deadline of this Friday.

The lawyer quickly realized it and arranged a meeting with Musk to write a correction. Tesla's stock rose by just $1.10, or less than 1 per cent, the next day.

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