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SEC seeks contempt charges against Tesla CEO Elon Musk over tweet

Elon Musk
Elon Musk seen Nov. 8, 2018. Reuters

Tesla CEO Elon Musk's tweeting habits have triggered another legal challenge from stock market regulators worried about him using his Twitter account to mislead investors. The latest dust-up emerged late Monday when the Securities and Exchange Commission (SEC) asked a federal court in New York to hold Musk in contempt for violating a $40 million settlement he reached with the agency five months ago.

The SEC had sued Musk last September for using his Twitter account to announce he had secured financing for a potential buyout of Tesla — news that caused the company's stock to swing wildly. He later backed off that buyout idea, but regulators concluded he had never lined up the money to pull off the deal.

Musk initially contended that he hadn't done anything wrong before reluctantly agreeing to have future tweets that could affect Tesla's stock be pre-approved.

Now the SEC is alleging that Musk broke the terms of that agreement with a Feb. 19 tweet projecting that Tesla would make about 500,000 cars this year. About 4 1/2 hours after that tweet, Musk altered his statement, saying he meant that Tesla had started to manufacture cars at a weekly clip that would translate into 500,000 cars during yearlong period, but not necessarily for calendar 2019.

Musk acknowledged he didn't get company approval for the initial Feb. 19 tweet, according to the SEC, even though car manufacturing statistics can affect stock prices of automakers. In his defense, Musk said he didn't think his tweet needed clearance because he was basing it on information that had been disclosed in late January. Both Feb. 19 tweets occurred while the U.S. stock market was closed.

The SEC attorneys cite a December interview with Musk on "60 Minutes" in which he said his tweets are not reviewed before he sends them. He said the only time they would be reviewed would be if they "had a probability of causing a movement in the stock."

Asked how he could determine that likelihood without having them reviewed, Musk said, "Well, I guess we might make some mistakes."

The SEC also pointed out that during the same interview, Musk declared: "I want to be clear. I do not respect the SEC. I do not respect them."

Tesla's legal team realized Musk may have crossed a line with his Feb. 19 tweet, according to the SEC. After that tweet posted, a Tesla lawyer "immediately arranged to meet with Musk and draft the corrective statement that Musk tweeted out over four hours later."

Tesla's stock dropped about 4 percent in after-hours trading Monday.

Contempt charges are typically brought against individuals who defy a court order. The SEC settlement exposes Musk to potential fines or even jail time if he is found to be in contempt.

Tesla didn't immediately respond to requests for comment about the SEC's latest move. But letters from the company's attorneys included in Monday's filing argue that Musk remains in compliance with the settlement.

Tesla CEO Elon Musk lashes out against the SEC 02:40
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