The Securities and Exchange Commission just asked a judge to hold Tesla CEO Elon Musk in contempt for reckless tweeting and breaking up the settlement stemming from Musk’s “420-funding-secured” episode. (Contempt filing here.)
Musk settled with the SEC in September 2018 in response to some dubious $70 billion privatization claim. He had to step down as Tesla chairman for three years and pay a $20 million fine. Tesla also paid a $20 million fine, and adopted new governance rules, including the inclusion of a securities expert/Twitter censor to stop possibly market-moving and less-than-accurate social media statements.
Yet Musk is engaged in brinksmanship with the SEC.
Last week Musk tweeted, “Tesla made 0 automobiles in 2011, but will make around 500k in 2019. ”
You’d have to call that 500,000 figure aspirational; rsquo & this;s 10,000 vehicles each week, an rate at this moment. The SEC called it &ldquo. ”
Musk walked back the claim a few hours afterwards, tweeting that Tesla’s annualized production rate at the end of 2019 would be approximately 500,000 automobiles, while the complete amount deliveries for 2019 was still forecast at approximately 400,000.
Musk went to taunt the SEC once more , tweeting:”SEC forgot to read Tesla earnings transcript, which clearly states 350k to 500k. How embarrassing…”
The SEC asserts that, in contrast to the settlement, “Musk’s tweets have been reviewed after their book,” but”Musk did not seek or receive pre-approval before publishing this tweet, which was incorrect and disseminated to over 24 million people,” according to the SEC filing.
The SEC goes on to claim,”For all the reasons mentioned, the SEC respectfully requests that the Court enter an order to show cause why Defendant Elon Musk should not be held in contempt of the Court's October 16, 2018 Final Judgment.”
A civil contempt breach can possibly result in an officer and director bar, imprisonment, or a fine. Tesla inventory is down 3.6 percent in after-market trading.
Tesla is going to need capital to grow. SEC investigations inhibit its ability to raise capital in public markets.
U.S. District Judge Alison Nathan at Manhattan issued her order one day after the SEC requested that Musk be held in contempt over tweets he left on Feb. 19 concerning Tesla’s 2019 manufacturing outlook.
This self-induced trouble comes in a treacherous time for Tesla. In order for Tesla to have a positive first quarter, plenty of pieces will have to fall into place. European and China deliveries need to ramp and make up for the de-emphasis on the U.S. market.
Meanwhile, as part of Tesla’s challenging quarter:
Tesla has a convertible bond which will have to be settled with $920 million in cash at the end of the week.
Consumer Reports fell its recommendation on the Model 3 (and a range of other auto versions ), citing a lapse in reliability.
Tesla’s general counsel resigned after only two months on the job.
Enormous cash penalties could be levied if employment targets aren't met at Tesla’s Buffalo factory.
Tesla had layoffs affecting 7 percent of employees across the company in January.
Tesla will need some sales performances in Europe and China this quarter to deliver Musk’s guarantee of 50 percent growth in 2019 and quarterly profits.
[updated 10 a.m. PT Feb. 26] Reuters reports that Musk has until March 11 to explain why he should not be held in contempt.
Read a timeline of Tesla's privatization saga here.
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