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Judge Dismisses Elon Musk Contempt Claims, Orders Revision Of Settlement Addressing SEC Concerns

Judge Dismisses Elon Musk Contempt Claims, Orders Revision Of Settlement Addressing SEC Concerns

Tesla Inc (NASDAQ: TSLA) investors prepared for the worst when CEO Elon Musk and the U.S. Securities and Exchange Commission delivered oral arguments in a Thursday contempt hearing.

The Pro-Tesla Ruling

In a victory for Tesla, U.S. District Judge Alison Nathan ordered the company to collaborate with the SEC to revise their previous settlement over Musk’s social media activity. Nathan told the parties to address the SEC’s concerns and to submit a letter to the court within two weeks to affirm their resolution.

She warned Musk to comply. "[It’s] not optional, it's not a game, I don't care if you are a small potato or a big fish,” she said.

Nathan’s decision was better than it could have been. The SEC requested the judge to weigh in on what settlement compliance should look like, to impose a series of increasing fines for continued violations, and to require monthly reports on Musk’s compliance.

A Recap Of Why We’re Here

In a motion filed in February, the SEC had asked Nathan to hold Musk in contempt for allegedly violating their earlier legal settlement. Musk, who inflated Tesla’s stock price last fall with ultimately false tweets about going private, wasn't supposed to tweet material company news without counsel approval.

Instead, the CEO remained rogue. A Feb. 19 tweet about production projections slipped by without prior review.

The SEC argued Musk should have gotten permission to make those statements online. Tesla claimed they were immaterial and the forecasts had been previously announced. It assured Musk complied with the agreement.

What Each Side Said

On Thursday, the SEC told Nathan that Musk "recklessly tweeted out information that has no basis in fact" and had no intention to comply with their agreement. His February tweet was material, it claimed, because the figures originally posted — prior to a correction — exceeded official guidance with a disparity worth billions of dollars.

“Tesla’s conduct is also troubling to the SEC,” the regulator’s attorney said. “This court ordered Tesla to implement a mandatory pre-approval process, but they are apparently fine with Mr. Musk making up his own procedure.”

Musk’s attorney, John Hueston, argued that the settlement standards had not been clear enough to warrant contempt charges and said the SEC should have attempted to work out its concerns outside court.

“We think it’s very clear that Mr. Musk retained discretion in the policy,” Hueston said. “The policy makes clear that the tweet is subject to a fact-based determination by Mr. Musk.”

Nathan concluded the hearing voicing “serious concerns” that the parties’ dispute remains unresolved.

Tesla's stock closed Thursday at $267.78 per share, down 8 percent on weak first-quarter deliveries.

Related Links:

Tesla's Top Attorney Calls It Quits After 2 Months, Says Not The Right Cultural Fit

Tesla And Consumer Reports: A History

Posted-In: Alison Nathan Elon MuskNews Legal Top Stories SEC Best of Benzinga


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