The U.S. regulator asked a federal judge to hold Tesla Inc.’s (TSLA) CEO in contempt after he inaccurately tweeted Feb. 19 that the electric automaker will make around half a million cars in 2019 to his 25 million followers. The SEC wasn’t impressed, claiming that the tweet, which Musk corrected four hours later to include the term “annualized,” betrayed a legally-binding agreement prohibiting him from publishing market-moving messages on social media without them being vetted first.
"Musk did not seek or receive pre-approval prior to publishing this tweet, which was inaccurate and disseminated to over 24 million people," the SEC wrote in the court filing.
News that the regulator is taking legal action and potentially reviving its efforts to get Musk ousted from his role as CEO of the automaker weighed on Tesla’s stock. The shares fell 3.34% in pre-market trading.
Breaching Earlier Settlement
In Oct. 2018, Tesla and Musk reached a settlement with the SEC after the regulator took issue with the CEO tweeted about taking the company private. The agency, which initially sought to prevent Musk from running the automaker, later agreed to a settlement that saw him get slapped with a $20 million fine, relinquish his position as chairman of the company and agree to seek approval before tweeting.
The SEC is now arguing that Musk’s Feb. 19 tweet breached that agreement. According to Arstechnica.com, the regulator wrote letters to Musk and Tesla on Wednesday to seek confirmation on whether the production target tweet had been pre-approved as required. On Friday, Tesla’s lawyer admitted that it hadn’t and that it didn’t need to be as Musk was repeating information that the company said in its annual report.
That’s not entirely true. Firstly, as part of their settlement, pre-approval of tweets is required if information is repeated from an official Tesla statement shortly after it is published. And secondly, Musk’s tweet wasn’t entirely accurate as the automaker said in its report that it hoped to hit an annualized production target of 500,000 cars sometime between the end of 2019 and second quarter of 2020.
Interestingly, Tesla general counsel Dane Butswinkas, the person most likely responsible for reviewing Musk’s tweets, resigned one day after the CEO claimed that 500,000 cars would be made this year.
Musk responded to the SEC’s court filing within a couple of hours. The entrepreneur, who once sarcastically called the agency the “Shortseller Enrichment Commission,” proclaimed his innocence and expressed his faith in the U.S. justice system.
"SEC forgot to read Tesla earnings transcript, which clearly states 350k to 500k. How embarrassing ..." He then added in another Tweet that he has “great respect for judges.” “It's not perfect, but, in general, we should be very glad of the U.S. justice system.”