SEC says Musk’s contempt defence ‘borders on the ridiculous’

DETROIT (AP) — United States (US) securities regulators countered Tesla CEO Elon Musk’s contempt-of-court defence on Monday night, writing in court papers that he brazenly disregarded a federal judge’s order and that one of his arguments “borders on the ridiculous.”

Lawyers for the Securities and Exchange Commission (SEC), in a response to Musk, wrote that when the contempt motion was filed in February, Musk had not had a single tweet approved by a company lawyer, violating a requirement of a court-approved settlement order.

The October securities fraud settlement stemmed from tweets by Musk last August about having the money to take Tesla private at USD420 per share. But Musk didn’t have the funding secured. Tesla and Musk each had to pay USD20 million in fines and agree to governance changes that included Musk’s removal as chairman.

SEC lawyers led by Cheryl Crumpton wrote in a response to Musk’s defence that he interprets the settlement order as not requiring pre-approval unless Musk decides the tweets are meaningful to investors.

The agency said Musk’s argument that tweeting about car production forecasts on February 19 wasn’t material information is nearly ridiculous. “His interpretation is inconsistent with the plain terms of this court’s order and renders its pre-approval requirement meaningless,” the lawyers wrote.

Tesla CEO Elon Musk. – AP

US District Judge Alison Nathan in Manhattan will decide if Musk is in contempt and whether he should be punished. The SEC said no hearing is necessary on the matter “because there appear to be no disputed issues of material fact.”

Musk’s lawyers wrote last week that the February 19 tweet merely restated previously approved disclosures on electric car production volumes. They wrote that the tweet, which was published after the markets closed, neither revealed material information, nor altered the mix of data available to investors.

The lawyers also accused SEC of censorship and of violating Musk’s First Amendment rights by imposing a prior restraint on his speech.

But the SEC lawyers wrote that submitting statements for approval does not mean Musk is prohibited from speaking. “As long as a statement submitted for pre-approval is not false or misleading, Tesla would presumably approve its publication without prior restraint on Musk,” they wrote. The SEC also wrote that Musk waived any First Amendment challenge to the order when he agreed to it.

Musk’s lawyers also argued that the SEC’s motion for contempt is an over-reach that exceeds its authority. But the SEC said enforcement of the order is up to the judge, who has broad powers to enforce court orders.

Monday’s filing said the February 19 tweet was different from prior public disclosures by the company. Also, Musk has regularly published tweets with “substantive information” about the company and its business, the SEC contended.

Musk’s 13-word February 19 tweet said that Tesla would produce around 500,000 vehicles this year, but it wasn’t approved by the company’s “disclosure counsel,” the SEC has said.

The lawyer quickly realised it and summoned Musk to the company’s Fremont, California, factory to help write a correction. The company would make vehicles at a rate of 500,000 per year, but it wouldn’t produce a half-million in 2019.