Tesla boss Musk must persuade court in contempt action

A federal judge on Tuesday ordered Tesla chief executive Elon Musk to explain by March 11 why he should not be held in contempt for violating his fraud settlement with the US Securities and Exchange Commission.

The order by US district judge Alison Nathan in Manhattan came hours after the billionaire criticised SEC oversight as “broken” in the wake of the regulator’s request on Monday night that he be held in contempt.

Lawyers for Tesla and Mr Musk did not immediately respond to requests for comment. Tesla did not immediately respond to similar requests. The SEC declined to comment.

Analysts said the renewal of the public battle between Mr Musk and the top US securities regulator will be an overhang on Tesla’s stock, which has lost about one-quarter of its value since peaking in August.

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“Another boxing match with the SEC is the last thing investors wanted to see,” wrote Daniel Ives, an analyst at Wedbush Securities, who has an “outperform” rating on Tesla. He called the latest incident “a wild card that could potentially bring this tornado of uncertainty back into the Tesla story until resolved.”

The SEC contempt motion followed Mr Musk’s tweet to his more than 24 million Twitter followers on February 19th: “Tesla made 0 cars in 2011, but will make around 500k in 2019,” meaning 500,000 vehicles.

According to the SEC, Mr Musk violated his October 2018 settlement agreement by sending that tweet without first seeking approval from Tesla’s lawyers. It also said the outlook contrasted with guidance that Tesla had given on January 30th that it would deliver about 400,000 vehicles in 2019.

The settlement resolved an SEC lawsuit over another Twitter post in which Mr Musk said he had “funding secured” to take his Palo Alto, California-based company private at $420 per share. Mr Musk agreed to step down as Tesla’s chairman, and both he and Tesla agreed to pay $20 million civil fines.

Four hours after his February 19th tweet, Mr Musk corrected himself, saying annualised production would probably be around 500,000 by year end, with full-year deliveries totaling 400,000. Bradley Bondi, a lawyer for Tesla, had told the SEC in a February 22nd letter that Mr Musk thought the substance of his first tweet had been “appropriately vetted, pre-approved, and publicly disseminated”.

It is not clear what punishment the SEC will seek. The regulator could seek a higher fine, further restrictions on Mr Musk’s activities, or removal of him from Tesla’s board. Alternatively, it could seek to ban Mr Musk from being a public company officer, which would force him to step down as Tesla’s chief executive.

It also is not clear how Mr Musk’s public criticism of the SEC might weigh on his fate. The criticism continued on Tuesday, when the businessman tweeted in the early morning: “Something is broken with SEC oversight.”

That followed his Monday night tweet, after the contempt motion was filed, that the “SEC forgot to read Tesla earnings transcript, which clearly states 350k to 500k,” and added: “How embarrassing.” – Reuters