Tesla CEO Musk gets reprieve in contempt-of-court hearing - InfoNews

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Tesla CEO Musk gets reprieve in contempt-of-court hearing

Tesla CEO Elon Musk arrives in a Tesla at Manhattan Federal Court, in New York, Thursday, April 4, 2019. Musk and his lawyers were appearing before a federal judge in New York who will decide whether the Tesla CEO should be held in contempt of court for violating an agreement with the U.S. Securities and Exchange Commission.(AP Photo/Richard Drew)
April 04, 2019 - 3:21 PM

NEW YORK - A judge on Thursday urged stock market regulators and Tesla CEO Elon Musk to amicably settle their dispute over his tweets.

If not, she said she'll decide whether to grant regulators' request that the outspoken executive face escalating fines if he breaks rules protecting investors.

U.S. District Judge Alison J. Nathan asked how she should punish Musk if she finds him in contempt for violating a deal with the Securities and Exchange Commission requiring him to first clear with lawyers tweets that might disclose important company facts.

SEC attorney Cheryl Crumpton recommended fines.

But at the end of the hearing, Nathan ordered both sides to seek a resolution over the next two weeks.

"Everybody take a deep breath, put your reasonableness pants on and work this out," Nathan said.

Even so, Nathan said court-supervised agreements must be obeyed.

"I don't care if you are a small potato or a big fish," Nathan said as Musk, with an estimated worth of $22 billion, sat at a defence table with his lawyers.

Nathan pressed Crumpton during the hearing to define the conditions under which Musk should seek approval before he tweets, and drew attention to ambiguity surrounding the rules the SEC sought to enforce.

Musk, who followed the back-and-forth intently with a slight frown and furrowed brow, emerged from the courtroom to say: "I'm very happy with the result and I'm impressed with Judge Nathan's analysis."

Attorney John Hueston, representing Musk, told the judge the SEC had failed to show his client had violated the deal. He said his client was "somebody trying his best to comply."

"He actually does what he is told," Hueston said.

The issue over Musk's tweets stems from a settlement reached last year after Musk tweeted that he had secured the funding to take Tesla private at $420 a share — a substantial premium over the company's stock price at the time — when he had not. That tweet last August sent the company's stock on a wild ride. The SEC says it hurt investors who bought Tesla stock after the tweet but before they had accurate information.

Musk later backed off the idea of taking the company private, but regulators concluded he had not lined up the money to pull off the deal.

The SEC says Musk blatantly violated the settlement in February when he tweeted about Tesla's vehicle production without a lawyer's approval.

Musk's 13-word tweet on Feb. 19 said Tesla would produce around 500,000 vehicles this year. But the tweet wasn't approved by Tesla's "disclosure counsel," and the SEC's contempt-of-court motion filed that month said Musk had not sought a lawyer's approval for a single tweet.

Musk said his tweet about car production didn't need pre-approval because it wasn't new information that would be meaningful to investors. His attorneys said the SEC was violating his First Amendment rights to free speech.

Much of the courtroom debate Thursday centred around whether the SEC rules provide a clear way to for Musk to determine whether or not the information he's about to tweet would be material to investors and, therefore, require preapproval from lawyers.

Hueston said further restricting Musk's ability to communicate about his company and imposing fines would "freeze his ability" to operate as an effective entrepreneur.

To support his arguments, Hueston cited an earlier exchange between the judge and Crumpton in which Nathan said she was "surprised" that the SEC left it up to Musk in so many instances to determine whether to run by his lawyers what he intended to put out publicly.

"Does he need preapproval?" the judge asked Crumpton at one point.

"We're not saying 'yes' or 'no,'" she responded.

Hueston said the SEC's first step after the tweet about production should have been to approach Tesla in good faith, and Nathan agreed.

"The parties should be meeting, conferring and providing some clarity so this issue won't happen again," Hueston said.

The SEC says its deal doesn't restrict Musk's freedom of speech because as long as his statements are not false or misleading, they would be approved.

Meanwhile, Tesla's shares fell 8% Thursday after the company said it churned out 77,100 vehicles in the first quarter, well behind the pace it must sustain to fulfil Musk's pledge to manufacture 500,000 cars annually.

Tesla also said it only delivered 63,000 vehicles in the quarter, down 31% from 2018's fourth quarter.

The SEC sought to oust Musk from his role as chairman and CEO over his August tweet. Instead, Musk and Tesla agreed to pay $40 million and made other concessions to settle the case. Musk agreed to step down as chairman for three years and remain in his role as CEO. He also begrudgingly agreed to seek approval from a company lawyer before he tweets.

Musk's unpredictable behaviour has led some to question whether he should remain CEO of Tesla, while others say he's the visionary behind the company and too valuable to lose. Last year, Musk berated stock market analysts for asking questions about Tesla's finances and prompted a defamation lawsuit when he called a diver who helped rescue 12 boys on a Thai soccer team from a flooded cave a pedophile.

As of Thursday's close, Tesla shares were down 19.5% so far this year.


Associated Press Writer Larry Neumeister contributed to this report.

News from © The Associated Press, 2019
The Associated Press

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