Elon Musk safe for now as U.S. judge urges Tesla CEO, SEC to end tweet dispute
Elon Musk`s job as Tesla Inc`s chief executive appeared safe on Thursday as a federal judge in Manhattan urged the billionaire to settle contempt allegations by the U.S. Securities and Exchange Commission over his use of Twitter.
At a hearing in Manhattan federal court, U.S. District Judge Alison Nathan gave both sides two weeks to work out their differences, and said she could rule on whether Musk violated his recent fraud settlement with the regulator if they failed.
The hearing appeared to lift an overhang over Tesla, as the SEC stopped well short of recommending Musk`s removal as chief executive or even from the electric car company`s board.
Instead, the regulator suggested that greater oversight of Musk`s communications, including the threat of new fines if he backslides, was punishment enough, at least for now.
"What this is to the SEC is strike two, and if there is another transgression they might seek a director and officer bar," said Peter Henning, a law professor at Wayne State University in Detroit and a former SEC lawyer. "They are just trying to send a message: be more careful."
Musk declined to discuss the hearing as he left the courthouse, surrounded by a horde of reporters, photographers and television cameras, but said "I feel very loved here."
Nathan had been asked by the SEC to hold Musk in contempt over a Feb. 19 tweet where the regulator said he improperly posted material information about Tesla`s vehicle production outlook without first seeking approval from its lawyers.
The SEC said pre-approval had been a core element of the October 2018 settlement, which resolved a lawsuit over Musk`s tweet last Aug. 7 that he had "funding secured" to take Tesla private at $420 per share.
That settlement called for Musk to step down as Tesla`s chairman, and levied $20 million civil fines each on Musk and the Palo Alto, California-based company.
Tesla`s share price tumbled on Thursday, after the company on Wednesday night reported lower-than-expected vehicle deliveries, but recouped some of their early losses after the SEC declined to demand Musk`s removal.
Shares of Tesla closed down $24.03, or 8.2%, at $267.78, after earlier trading down as much as 10.7%.
Tesla, which built its reputation on luxury cars, has faced several production challenges with its Model 3 sedan, which it is counting on to reach the mass market, recently offering a version starting at $35,000. SEC ALSO FAULTS TESLA
The battle concerned a tweet that Musk sent to his more than 24 million Twitter followers: "Tesla made 0 cars in 2011, but will make around 500k in 2019," meaning 500,000 vehicles.
Four hours later, Musk corrected himself, saying annualised production would be "probably around" 500,000 by year end, with full-year deliveries totalling about 400,000.
The SEC said the earlier tweet conflicted with Tesla`s Jan. 30 outlook, when it targeted annualised Model 3 production exceeding 500,000 as soon as the fourth quarter, and projected 360,000 to 400,000 vehicle deliveries this year.
Musk`s lawyers countered that the earlier tweet merely restated a forecast he had given on Jan. 30, and that the SEC conceded during settlement talks that Musk did not need pre-approval for all tweets about his company.
At Thursday`s hearing, SEC lawyer Cheryl Crumpton said that if Musk were held in contempt, the regulator might ask Nathan to require regular reports about his oversight by Tesla lawyers, including whether they vetted his statements and if not why.
Noting that Musk had called his $20 million fine "worth it," Crumpton said the threat of higher potential fines might also be needed to convince Musk that further violations would be "not worth it."
Crumpton also faulted what she called Tesla`s "troubling" conduct. "Tesla still appears to be unwilling to exercise any meaningful control over the conduct of its CEO," she said.
The SEC did not accuse Tesla of contempt.
Musk`s lawyer, John Hueston, countered that the "ambiguity" of the settlement made further punishment for his client unfair.
"There simply is not a clear enough standard to use the hard penalty of contempt," he said.RESPECT FOR JUSTICE SYSTEM
The "funding secured" tweet had sent Tesla`s share price up as much as 13.3 percent. Musk`s privatisation plan was at best in an early stage, however, and financing was not in place.
The legal battle has not stopped Musk from being an outspoken critic of the SEC.
Since it began last September, he has labelled the SEC the "Shortseller Enrichment Commission," recalling his attacks on investors who sell Tesla stock short.
And in the early morning of Feb. 26, after the SEC filed its contempt motion, Musk tweeted: "Something is broken with SEC oversight."
Musk is worth $20.7 billion, according to Forbes magazine.
"A fine is not going to be that big of a deal for him," said Henning, the Wayne State law professor. "A key question is going to be how much is Musk going to dig his heels in and refuse to accept any additional conditions."
As he prepared to enter the courthouse. Musk told reporters: "I have a great respect for the justice system."
Asked whether he also respected the SEC, Musk laughed, before turning to go inside.
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)
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