Elon Musk safe for now as U.S. judge urges Tesla CEO, SEC to resolve 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.
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.
Musk declined to comment about the hearing as he left the courthouse, surrounding by reporters, photographers and television cameras.
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 company 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.POSSIBLE DRAG LIFTED
Legal experts had said Musk could have faced penalties as severe as removal from Tesla`s board or as chief executive if held in contempt.
But at Thursday`s hearing, the SEC stopped short of recommending such sanctions.
That lifted a potential drag on Tesla`s share price, which recouped some early losses stemming from its Wednesday night report of lower-than-expected vehicle deliveries.
The shares closed down 8.2%, after earlier falling as much as 10.7%.
SEC lawyer Cheryl Crumpton said if Musk were held in contempt, the regulator might ask Nathan to require regular reports about his oversight by Tesla lawyers, including whether they were vetting his statements and if not why.
Noting that Musk had called his $20 million fine "worth it," she also said higher fines for future violations might be needed to ensure that further backsliding 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.
Musk sat quietly with his lawyers, sometimes staring down at paperwork, during oral arguments.SEC CALLS TWEET "OBVIOUSLY DIFFERENT"
The battle concerns 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 called the earlier tweet "obviously different" from 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.
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.
On Wednesday night, Tesla repeated its Jan. 30 vehicle delivery forecast, but said first-quarter deliveries had fallen 31 percent from the prior three months to about 63,000.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 told CBS’s “60 Minutes” he did not have respect for the SEC.
And in the early morning of Feb. 26, after the SEC filed its contempt motion, Musk tweeted: “Something is broken with SEC oversight."
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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