The next day, the SEC asked the company whether the tweets had been reviewed before being published, a requirement of a settlement agreement Musk reached late last year. The first tweet had not been preapproved, the company said. Instead, Tesla’s attorneys saw the tweet after it was published and then contacted Musk to draft a corrective second tweet, the SEC said in a motion filed in the U.S. Southern District Court.
“As a result of his failure to comply with the [settlement, Musk] once again published inaccurate and material information about Tesla to his over 24 million Twitter followers,” the SEC said.
Tesla did not respond to requests for comment. But Musk had his own message. Shortly after the SEC movement was announced, he tweeted a surreal meme and a short statement: “Oh hi lol.”
The SEC’s motion is the latest escalation in the battle between one of the country’s most powerful regulators and the eccentric billionaire. Musk has openly taunted the SEC, calling it the “Shortseller Enrichment Commission.”
The SEC did not ask for a specific punishment for Musk’s alleged violations of the settlement, but legal experts said the consequences for Musk could be severe.
“No other CEO would have survived this,” said Charles Elson, director of a corporate-governance center at the University of Delaware. “At some point, you can be the most brilliant person on Earth, but you’re still subject to the same laws and the same requirements as everyone else.”
The SEC’s motion could throw the electric carmaker into chaos, at a time when it is under pressure to repay hundreds of millions of dollars of loans due in coming months. It also turns up the heat on the SEC to prove it can crack down on the renegade style of rule-breaking Musk has popularized as a celebrity corporate chief.
Last September, Musk reached a $20 million settlement with the SEC, which had accused him of lying to investors when he tweeted that he had “funding secured” to take Tesla private. As part of the settlement, Tesla agreed to review Musk’s market-moving tweets and public statements before he published them.
In a letter to the SEC included in the agency’s motion, Tesla said it took the terms of the settlement seriously, noting that it had already appointed a new independent board chair and two new independent directors. A “Designated Securities Counsel continually monitors Mr. Musk’s tweets,” the company said in its response.
Tesla also said that Musk’s initial tweet about production levels were in line with what the company had told investors during a January 2019 call. Musk’s tweets were “intended to recapitulate” that information, Tesla told the SEC.
Although the initial tweet “was not individually pre-approved, Mr. Musk believed that the substance had already been appropriately vetted, pre-approved, and publicly disseminated,” Tesla said in the letter.
But the SEC called that explanation “not credible.” The information was “obviously different” from what the company had initially disclosed to investors. In addition to not being preapproved, it was inaccurate, the SEC said.
According to the SEC, Musk appears to have never been serious about complying with the agreement. During a December interview on “60 Minutes,” journalist Lesley Stahl asked Musk whether any of his tweets had been preapproved since the settlement. Musk said they hadn’t been. Stahl then asked how Tesla knew if his tweets could move the company’s stock price. “Well, I guess we might make some mistakes. Who knows?” Musk responded.
That interaction shows that Musk didn’t plan to comply with the settlement, the SEC alleged. “Musk’s tweets have been reviewed after their publication, but there is no suggestion that Musk has sought or obtained pre-approval of any tweet prior to publishing it,” the SEC said.
It is not surprising that the SEC felt compelled to ask for Musk to be found in contempt, said Elson, of the University of Delaware. “They have to react. From an agency standpoint, if you show outright contempt towards the agency and they do nothing, how are they ever going to enforce the law?” he said.
The SEC could ask the judge to increase the $20 million fine Musk has already paid or move to punish the company’s board if they don’t rein him in, said Adam Epstein, a corporate-governance adviser. But SEC is not likely to ask that Musk be removed from the company altogether, as it initially did last year, he said.
“He has a pattern and practice of tweeting in an inflammatory fashion for years,” Epstein said. “He probably knows that the government is not going from DEFCON 5 to DEFCON 1 to remove him from the company, because that would be the worst possible outcome for investors. He’s clearly created more value than he’s hurt shareholders by his tweeting."