Judge gives SEC, Elon Musk 2 weeks to resolve dispute

by Bamidele Ogunberu Last updated on April 29th, 2019,

A federal judge on Thursday ordered the US Securities and Exchange Commission (SEC) and Elon Musk to resolve their dispute over the Tesla CEO’s use of twitter within two weeks.

Judge Alison Nathan of the US District Court for the Southern District of New York issued the order at the conclusion of a hearing on Thursday concerning the SEC’s motion requesting that the court hold Musk in contempt. The SEC filed the motion after Musk tweeted inaccurate information in February 2019 about Tesla’s projected production rate. The SEC argued that the tweet violated a settlement agreement reached with Musk in October 2018 over a similarly controversial August 2018 tweet. The settlement agreement, which included $20 million in fines, mandated that Musk not tweet information that would be material to investors without the approval of Tesla’s board of directors. In his response to the SEC’s motion, Musk criticized the reading of the settle agreement as overbroad and asserted that he did not need approval for every tweet relating to Tesla.

The order requires that both parties meet and resolve the pending contempt order against Musk by April 18, 2019. If no agreement is reached, Nathan indicated that the court will resolve the question of whether Musk will be held in contempt.

The Securities and Exchange Commission (SEC) filed a motion asking the court to hold Musk in contempt for two tweets on February 19. The first said Tesla would manufacture 500,000 cars in calendar year 2019. A short time later he clarified that by tweeting that the company would produce 400,000 in 2019 but would be on pace to make 500,000 a cars by the end of the year — would hit a weekly run rate that, extrapolated by 52 weeks, would equal 500,000.

The SEC took umbrage with the tweets, arguing that they deliberately violated an agreement the company, Musk, and the SEC came to last year after the infamous “taking Tesla private” tweet caused Tesla short sellers to get their BVDs in a bunch. Prior to his court appearance on April 4, Musk said the second tweet was “true, immaterial to shareholders, and in no way a violation of my agreement with the SEC.”

That agreement last year is what led to Musk stepping aside as chairman of the company, a position subsequently filled by Robyn Denholm. It also was supposed to make Musk more cautious when it came to publishing tweets that could affect the company’s stock price.

The thinking among courtroom observers is that if Judge Nathan agreed with the SEC, she would have sanctioned Musk and been done with it. That she didn’t suggests the judge found the SEC plaint less than persuasive.

In court, she told both sides, “Put your reasonableness pants on.” She then ordered both parties to meet with each other for at least one hour in the next two weeks to work out an agreement that will clarify the original order and resolve the pending motion to hold Musk in contempt. They are to file a joint report to the court by the end of the two-week cooling off period.

After the hearing, Musk issued a statement, saying, “We have always felt that we should be able to work through any disagreements directly with the SEC, rather than prematurely rushing to court. Today, that is exactly what Judge Nathan instructed.”

Musk was asked if the two sides would meet and resolve their dispute in the next two weeks. “Looks like it,” he told reporters with a smirk on his face before driving away in a Tesla Model S. If he was worried by what happened in court on Thursday, he certainly didn’t show it.

Leave a Reply