Tesla inventory (NASDAQ:TSLA) was shaken on Monday after the US Securities and Exchange Commission asked a judge to hold Elon Musk in contempt for reportedly violating a settlement that required him to get approval before releasing any social media posts or statements that could be material to investors. Irrespective of the judge’s conclusion, Elon Musk and the SEC’s run-ins with each other are adversely affecting investors and unnecessarily weighing down Tesla. This is some thing is avoided, by the company and Elon Musk himself, in the future.
According to the SEC, Musk’s tweet on February 19, when he mentioned that Tesla will make “around 500K” vehicles in 2019, was a violation of his settlement with the bureau this past year. Musk later clarified his statement, explaining that he had been talking about an annualized production rate of around 500k (approximately 10k cars per week) vehicles by 2019’s end, but that deliveries for the year are “still estimated to be about 400k. ”
Meant to say production rate at end of 2019 around 500k, ie 10k cars/week. Deliveries for year still anticipated to be about 400k.
— Elon Musk (@elonmusk) February 20, 2019
The SEC claimed in papers filed in a Manhattan courtroom that Elon Musk “once again published inaccurate and material information regarding Tesla to his over 24 million Twitter followers, including members of the press, and made this incorrect information readily available to anyone with internet access. ” The SEC’s announcement adversely affected the company’s inventory, sending TSLA plummeting 4 percent on Monday’s after-hours following the announcement. It didn’t take long before some of the company’s staunchest critics began to predict that Musk is going to be incarcerated.
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Regardless of the company’s critics calling for Musk to be sent behind bars, Peter Haveles, a partner at Pepper Hamilton in New York whose practice specializes in commercial and regulatory disputes, noted in a statement to The Verge that another fine will probably be the outcome of the SEC’s claim against the Tesla CEO.
“Mr. Musk will try to argue that it’s a one-time thing, and the issue is going to be, is that true? Will the SEC come forward with evidence from Tesla that they’re trying hard to get Mr. Musk to obey the procedure? It’s unlikely that Musk will face being barred from serving as a director or officer of a publicly traded company for the tweet,” he said, later adding that Elon Musk’s tweet doesn’t rise to the level of criminal contempt; and consequently, the CEO doesn’t need to worry about jail time.
Nevertheless, it ought to be noted that while the SEC might be somewhat aggressive with its request to have the CEO held in contempt of court due to his February 19 tweet, Musk could have prevented the entire issue altogether if he’d just been more cautious. Plus it’s not like this is the first time such a thing occurred , as it had been his Twitter actions that landed him in hot water last year due to his now notorious “funding secured” announcement.
It will be difficult for the SEC to establish that Elon Musk’s tweets were a violation of his settlement’s provisions. For one, Musk’s February 19 while markets were closed, tweet was made. It will be very hard to gauge the “materiality” of the announcement. Musk also mentioned the very same figures weeks before throughout the Q4 2019 earnings call, when he estimated that Tesla could produce “possibly in the order of 350,000 to 500,000 Model 3s” this season. Musk mentioned this in a subsequent tweet, saying that the SEC seemed to have forgotten to read the transcript of Tesla’s Q4 earnings.
SEC forgot to read Tesla earnings transcript, which says 350k to 500k. How awkward … 
— Elon Musk (@elonmusk) February 26, 2019
It’s difficult to not see a specific bias emerging from the SEC against Musk’s Twitter actions, considering that the tweet in question didn’t actually affect Tesla inventory and the quote was already public knowledge because of the fourth quarter earnings call. In a way, it seems like the SEC’s recent initiative against Musk is response of sorts against the CEO’s statements contrary to the bureau. Musk has mocked the bureau on Twitter previously, dubbing it as the “Shortseller Enrichment Commission,” and in a 60 Minutes segment, he flat-out admitted that he doesn’t respect the SEC. Ultimately, the SEC’s claim will need to depend on the grounds of Elon Musk posting his Tesla-related tweet without the message being vetted first, as agreed upon in last year’s settlement.
Tesla is at a stage in its history where the company could grow into one of the forces in the auto industry. With Model 3 production stabilized, Gigafactory 3 under construction, and vehicles such as the Model Y set to be revealed, tweets such as Musk’s February 19 announcement are things that the company can do without. If led by a more cautious, more calculating Elon Musk, Tesla’s inevitable rise to power will definitely happen sooner than expected.
As of writing, Tesla shares are trading -3.52 at $288.25 per share on Tuesday’s pre-market.
Disclosure: The opinions presented in this article are the author’s alone, and do not necessarily reflect the stand of Teslarati. I have no ownership in shares of TSLA and have no plans to commence any places.
The article Tesla is becoming unnecessarily weighed down by the SEC’s claims from Elon Musk appeared initially on TESLARATI.com.
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