Tesla’s Elon Musk Calls SEC’s Contempt Claim an ‘Unconstitutional Power Grab’
Musk claims the SEC’s motion to hold him in contempt limits his first amendment and other constitutional rights.
On the deadline of his rebuttal, Tesla CEO responded to a motion filed by the United States Securities and Exchange Commission (SEC) asking a federal judge to hold him in contempt of a prior settlement agreement. The response by Musk indicated he felt that the judge should not hold him in contempt, stating that the agreement would limit his first amendment and other constitutional rights.
Musk argues that although he did not seek pre-approval to his tweet, he was not required to do so as it was not only previously disclosed information, but was also a "celebratory and forward-looking" statement which would be immaterial as a matter of law.
A federal judge approved two separate settlements for both Musk and Tesla in October 2018, each costing the respective parties a whopping $20 million fine and Musk his role as Tesla board chairman. As part of the settlement agreement, Musk would seek approval from a Disclosure Counsel before tweeting any communications about the company which could "contain information that could reasonably be considered material".
The SEC's contempt claim cites a tweet made by Musk on Feb. 19 which states that Tesla would build "around 500k" vehicles in 2019, a number significantly higher than the information disclosed in Tesla's Full Year 2018 update which Tesla stated that is estimated to "deliver 360,000 to 400,000 vehicles in 2019."
After tweeting, Musk conferred with the Disclosure Counsel regarding his statement and issued a clarifying statement several hours later to indicate that deliveries were still estimated to be around 400,000 units. Musk's personal lawyers also say that this tweet wasn't necessary, as the original not only was in-line with the CEO's settlement but was made outside of NASDAQ trading hours and should not have impacted trading.
An attachment to the filing, Exhibit 8, also explores an interesting angle. Although the statement says that Tesla believes that Musk had exercised "reasonable and appropriate judgment" when communicating about Tesla-related items, it also states that Musk had not sought pre-approval for any of this Twitter communications from the time when the SEC settlement became active until the SEC asked that a judge hold Musk in contempt.
A personal statement also attached to the filing by Musk reinforced Musk's disdain for the SEC, a regulatory body which he has jested should instead be called the "Shortseller Enrichment Commission".
The outcome of this particular series of events will be difficult to predict. While Musk's first amendment rights do come into question, it's unclear of where his personal rights end and his fiduciary duties as an officer of Tesla begin. Ultimately, the ruling will be at the discretion of the judge presiding over the case, which could find Musk not in contempt or go as far as barring Musk from acting as an officer for any publicly traded company.