Elon Musk says the SEC is making an ‘unconstitutional power grab’ over his tweets

Elon Musk says he shouldn’t be held in contempt of court over a recent tweet about Tesla because he didn’t violate his settlement agreement, and “there is no basis to issue contempt sanctions against him,” according to a new court filing. The filing says Musk “correctly used his discretion to determine” that a tweet on February 19th “did not contain information that could reasonably be considered material” to Tesla.

The tweets in question are better understood as “proud and optimistic restatement of publicly disclosed information,” the filing says. The filing also notes that Musk’s tweets about yearly Tesla production came after the close of market. Further, Musk has attempted to comply with the settlement by tweeting less — showing that he’s taken it seriously. Musk’s lawyers also argue that the SEC’s interpretation of the settlement agreement “raise serious First Amendment issues.”

Musk is responding to a Securities and Exchange Commission (SEC) filing on February 25th, when the agency asked a federal judge to hold the Tesla CEO in contempt. The SEC said that a tweet Musk sent on February 19th about the company’s production targets for 2019 violated the settlement between Musk and the SEC last year. It’s not entirely clear what the outcome will be if Musk is held in contempt.

The SEC said in February that Musk included inaccurate information in that tweet about how many cars the company expects to make in 2019. Musk wrote that Tesla “will make around 500k [cars] in 2019,” even though Tesla forecast making a maximum of 400,000 cars this year just a few weeks before. Musk followed up hours later with another tweet where he corrected himself, adding that he meant to say Tesla will make cars at a fast enough rate to be able to make 500,000 in a year. As the SEC investigated Musk’s claim, the agency discovered Musk hadn’t run the tweet by a company lawyer before he sent it, a violation of the terms of the settlement last year.

Musk’s lawyers say that the correction tweet was unnecessary, since the original tweet on February 19th didn’t violate his settlement. Tesla’s counsel reviewed the tweet after it was posted. “This was consistent with the Policy, which provides that Tesla will periodically review tweets after they are posted and provide feedback if necessary,” Musk’s counsel wrote. Though Tesla and Musk didn’t view the tweet as material, he followed the tweet a few hours later “out of an abundance of caution.” The tweet didn’t cause the stock price to move after market, the lawyers write.

The settlement comes from when the SEC sued Musk last September for committing securities fraud, after the CEO announced in August that he had the “funding secured” to take Tesla private. Musk had only held a few exploratory meetings with Saudi Arabia’s Public Investment Fund, and had no funding in place when he sent that tweet, which temporarily sent Tesla’s stock price soaring.

The SEC opened an investigation the next day, and approached Musk with a settlement in late September, which the Tesla CEO reportedly declined. The agency filed suit against him in the Southern District of New York on September 27th. Two days later, Musk accepted a settlement with more onerous terms. He was forced to step down as Chairman of Tesla for three years, agreed to submitting any public statements (including tweets) with material information about the company to an in-house lawyer for screening, and made to pay a $20 million fine. Tesla was also fined $20 million, and had to appoint two new independent directors to its board.

Musk spent the next few months teasing the SEC, calling it the “Shortseller Enrichment Commission,” and saying in a December 60 Minutes interview that he still planned to tweet what he wanted. He added that while he respects the justice system, he does not respect the SEC.

The SEC said in its request to hold the Tesla CEO in contempt that this pattern of behavior showed Musk “did not intend to diligently attempt to comply with the [terms of the settlement].” As it happens, the SEC watches 60 Minutes, and that interview was cited in the agency’s filing.

“While Musk claims to “respect the justice system,” his deliberate indifference to compliance with this Court’s Final Judgment indicates otherwise,” lawyers for the SEC wrote in February.

By contrast, Musk’s lawyers characterize the SEC’s interpretation of the settlement as an “unconstitutional power grab.” Having lawyers review his tweets before he sends them — the SEC interpretation of the settlement “would effectively prevent Musk from speaking on any matters related to Tesla business based on the subject matter alone,” today’s filing reads. “Musk never consented to and would not consent to such a sweeping gag order.”

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