SEC Seeks Further Action Against Elon Musk for Failure to Comply With Prior Twitter Settlement
The SEC attests that the Tesla CEO's reasoning to tweet without approval "borders on the ridiculous."
On Monday, the United States Securities and Exchange Commission filed another response in a case against Tesla CEO Elon Musk which it has asked a judge to review for contempt proceedings. The 31-page filing contains language from the SEC which shows a believed violation of a previous settlement between Musk and the regulatory body and suggests the CEO never actually took the settlement seriously.
The SEC began investigating its options for contempt after Musk tweeted what he called a "celebratory" outlook on Feb. 19, a social media post that the SEC would begin calling the "7:15 tweet."
In an earlier statement by Musk, the CEO stated that he had not sought approval for any of his tweets prior to the SEC filing its request to find him in contempt of their earlier settlement. The SEC insinuates that it was stunned to learn that Musk took the court order so lackadaisically and believed that it was blatant ignorance which led Musk to disregard the terms of the court-approved agreement.
As noted above, Musk previously claimed he did not seek approval for this tweet in accordance with the Senior Executives Communication Policy, but instead had it reviewed after he posted it. The SEC continues to slam Musk's judgement for his “7:15 tweet,” saying that he has offered three explanations on why he chose to circumvent the policy:
- Reason 1: Musk “individually pre-approved” the tweet.
- Reason 2: Musk “believed that the substance had already been appropriately vetted, pre-approved, and publicly disseminated.”
- Reason 3: Musk's tweet "could not have reasonably contained material information."
The SEC continues to say that Musk has offered no citation to his claim that Tesla had previously "publicly disseminated" information on building 500,000 cars in 2019 prior to the tweet in question, making it reasonable assumption that the tweet could have contained “material information" and would require prior approval in accordance with the terms of Musk and Tesla's settlement offers.
Because of this, the regulatory body continues to suggest that Musk's judgment "borders on the ridiculous."
The SEC reaffirms that it charged Musk with fraud last September, only to settle out of court because it had come to an agreement which the regulatory body believed would prevent the future dissemination of "misleading or inaccurate information." The filing goes on to suggest that it previously allowed Musk off easy by allowing him to seek pre-approval as a communications standard, which is not the standard that's typically applied in SEC civic fraud actions.
Musk had previously claimed the SEC's requirements violated his First Amendment right to free speech. The SEC denounces this claim and states that Musk is free to communicate openly on Twitter, so long as any tweets made about Tesla or its operations are pre-approved and are not false or misleading. It will instead rely on Tesla's council to police any false or misleading statements ahead of publication.
Furthermore, the governmental entity states that it was concerned with Tesla's compliance in its own final judgment which ordered the automaker to adhere to a policy which would police its CEO's company-related communications on social media.
The SEC tallies at least 11 potential tweets which could reasonably contain material information to Tesla, which, admittedly, would not have been reviewed. Instead, Musk relies on Tesla's internally established council to review the tweets "upon publication" to ensure that he is compliant with the agreed upon settlement.
The regulatory body ends the filing by asking the presiding judge to find Musk in contempt of the court order and forego a hearing, as there appears to be no dispute of material fact between Musk and the SEC. Musk's lawyers promptly responded to the claims and asked for an extension to file a factual response no later than Friday.
If the court finds Musk in contempt, it's not clear what the outcome will be. The ruling—including fines and any applicable punishment which is not limited to being barred from acting as an officer of a publicly traded company—is up to the judge. Musk is one of Tesla's most valuable assets and is often cited by financial analysts as a reason for the company's inflated stock valuation, and removing him as an officer (however unlikely) could have unprecedented repercussions for the automaker.