Elon Musk and SEC reach an agreement over tweeting
Tesla CEO Elon Musk and the US Securities and Exchange Commission have apparently made nice again after a months-long standoff.
Musk and federal regulators on Friday agreed to amend a settlement deal approved last October that required oversight of Musk’s social media use. The updated deal outlines a slew of topics Musk cannot tweet about until he obtains pre-approval from an “experienced securities lawyer.”
Among those topics: Any information about Tesla’s financial condition; potential or proposed mergers; production numbers or sales or delivery numbers; and new or proposed business lines. It also includes any “nonpublic legal or regulatory findings or decisions,” as well as any topic the company or its board “may request” if they think pre-approval “would protect the interests” of shareholders.
That’s a lot more specific than what had already been in place. The original settlement included a condition that Musk get pre-approval before sending social media posts containing information that is “material” to investors. Tesla’s plan to comply with it allowed Musk to essentially decide for himself when his tweets needed to get that pre-approval.
The updated settlement has not yet been approved by federal judge Alison Nathan. Her thumbs up would be a favorable outcome for Musk: If he lost this most recent battle in his ongoing feud with the SEC, Musk could have faced hefty fines or lost his job as CEO, though the agency had only recommended fines during a recent hearing.
The newly proposed terms don’t add any fines or punishments for potential non-compliance.
Musk and the SEC had been at each other’s throats for months. The spat largely came about because of Musk’s frequent and casual use of Twitter, which he uses for not only chatting with customers and sharing memes, but also to post information about Tesla’s outlook.
The latter is the the kind of thing that first landed Musk in hot water with the SEC last year, when he claimed in a tweet that he was “considering” taking Tesla private at $420 a share and that he had secured funding for the deal.
His tweet sent Tesla’s stock surging. But the SEC later said funding was not, in fact, secured, and it accused Musk in a lawsuit of misleading investors.
At first, Musk signaled that he would fight the agency. But weeks later, regulators announced that he and Tesla had agreed to settlement deals that saddled them with $40 million in fines and required Musk to step down as the company’s chairman. He retained the role of CEO.
Musk also said in a December interview with “60 Minutes” that he would not allow all of his tweets to be proofread, though he insisted that he planned to comply with the settlement terms out of “respect” for the “justice system.”
The relative peace didn’t last long. Musk’s latest legal battle with the SEC flared up in February after the agency claimed that Musk violated their settlement agreement when he tweeted that Tesla would make 500,000 total cars in 2019. Hours later, he clarified that Tesla hoped to reach a 500,000 car-per-year production rate by the end of 2019 and deliver 400,000 cars this year.
After Musk posted that tweet, the SEC asked a federal judge to hold Musk in contempt, saying he had not “made a diligent or good faith effort” to comply with the settlement. While Tesla conceded that Musk did not receive pre-approval for the February posts, the company has since claimed that he didn’t need it.
The two sides wound up in court on April 4, where judge Nathan ordered them to put their “reasonableness pants on” and try to settle their difference outside the courtroom. That’s what ultimately led to Friday’s agreement.
“I think it is a very reasonable approach,” said Marc Leaf, a securities partner at Drinker Biddle in New York and former SEC lawyer. “It recognizes that investors are smart enough to distinguish between tweets that are material information — and Elon being Elon.”
Charles Elson, a professor of corporate governance at the University of Delaware, disagreed. He said he thought the deal reflected weakness by the SEC.
“When someone is in contempt of the agency in this manner, they need to react firmly and severely to retain their credibility with others who are accused of violating” agreements, he said.
Tesla declined to comment.