- The SEC gave Tesla CEO Elon Musk until March 11 to argue why he did not violate a court order last month after he tweeted an inaccurate statement about the company’s vehicle production.
- The SEC order had mandated that Musk seek approval for tweets material to the company.
- Musk filed his response to the court, arguing the SEC was seeking to expand on the order with its interpretation, and that its interpretation violates his First Amendment right to free speech.
As ordered, Tesla CEO Elon Musk has filed his response to the Securities and Exchange Commission, arguing against the agency’s assertion that he was in contempt of court when he fired off tweets about Tesla’s production numbers last month.
In the filing, Musk claims the SEC is attempting to expand on the terms of its settlement from last year by limiting his speech on Twitter and that, in doing so, it seeks to violate his First Amendment rights.
Musk also claims that he has “diligently attempted to comply” with the SEC, and that the SEC’s use of Musk’s comments made during a CBS “60 Minutes” interview as proof of his violation reflected a “concerning and unprecedented overreach on the part of the SEC.”
This all goes back to ‘funding secured’
All of this drama dates back to last August, when Musk tweeted that had funding secured to take Tesla private at $420 a share. He did not.
So the SEC fined him and Tesla $20 million each, arguing that his false statement illegally manipulated Tesla’s stock. As part of that settlement, Musk was ordered to run any tweets containing material statements about Tesla through a Twitter czar, of sorts.
Last month, Musk tweeted that Tesla would make 500,000 cars in 2019 — a figure 25% higher than what Tesla projected in its company filings. Musk, hours later, corrected the tweet saying that he meant Tesla would achieve an annualized production of 500,000 cars between Q4 2019 and Q2 2020.
But the damage was done. The day after the tweet, Tesla’s chief lawyer quit, and within a week, the SEC had filed a claim stating that Musk was in contempt of court. The SEC cited not only the 500,000-car tweet, but also an interview Musk did with “60 Minutes” in which he criticized the SEC and admitted that the Twitter czar was not checking all of his tweets.
He told interviewer Leslie Stahl that he might “make mistakes.” Mistakes figure heavily into Musk’s rebuttal to the SEC, as do his First Amendment rights and the idea that the agency is trying to retaliate against him.
“The SEC’s primary evidence that Musk has not been diligent in his efforts to comply with the Order consists of excerpts from an interview he gave to 60 Minutes…During the interview, and consistent with his First Amendment rights, Musk was sharply critical of the SEC. The SEC’s heavy reliance on this interview in its motion for contempt smacks of retaliation and censorship,” Musk’s response reads.
Musk argued that his tweet about manufacturing 500,000 cars was not material to Tesla, and thus did not merit an examination by the Twitter czar.
“Musk was rightfully proud of the work he and his team had done to get Tesla from a point where it produced no cars to a point where it would be producing hundreds of thousands of vehicles. Under no fair reading of the materiality standard did Musk’s proud and optimistic restatement of publicly disclosed information, coming after the market closed, ‘significantly alter’ the total mix of information available to investors,” Musk’s filing argued.
In fact, it said, Musk’s tweet actually represented his diligence in following the SEC’s order, since he talked to his Twitter czar afterward. The CEO “reasonably” had decided that the tweet — despite containing a forward-looking projection — did not require pre-approval.
Taking Musk’s ability to use his own judgement as to what is and is not material, the response argues, is tantamount to censorship and expands on the SEC’s initial order turning it into an “unconstitutional power grab.”
“In addition to running afoul of the First Amendment, seizure by the SEC of power to censor speech even when that speech does not violate the laws the SEC is empowered to enforce would implicate separation-of-powers concerns,” Musk’s defense reads.
The response also argues that Musk’s tweet was, more or less, in line with statements he’d made before — though previous statements, like one from Tesla’s Q4 investor update, made it clear Musk was talking about annualized production from the outset.
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