Tesla CEO’s twitter habit risks irking judge, earning fines

Tesla is trying to make the user experience more convenient for its vehicle owners. — AFP Relaxnews

WASHINGTON: Elon Musk’s Twitter habit is putting him in increasing legal jeopardy, with the Tesla Inc chief executive officer facing millions of dollars in additional fines, tighter restrictions on his use of social media and even a possible bar on running the company, experts say.

The US Securities and Exchange Commission (SEC) said that Musk’s unapproved post last week about Tesla vehicle production was misleading and violated a judge’s order from September. Last year, Musk was fined US$20mil, lost his chairmanship and was ordered to clear future tweets after a batch of tweets about taking the company private.

“Judges don’t like to be ignored, and they have a lot of power,” said Roberta Karmel, a former SEC commissioner who’s now a professor at Brooklyn Law School. “If I were the judge, I guess I’d come down pretty hard on Elon Musk.”

The securities regulator asked a New York judge to find Musk in violation of his September settlement, which required the CEO to clear with the company any communications important to Tesla investors. Tesla also appointed an experienced securities lawyer as Musk’s “Twitter sitter” to keep an eye on his social media posts.

The latest round of regulatory trouble for Musk comes after a Feb 19 tweet that said Tesla would make about half a million cars in 2019. A few hours later, the CEO amended his earlier tweet to say the “annualised production rate” should reach about 500,000, or about 10,000 cars per week, by the end of the year.

Deliveries would reach only about 400,000, he said. The SEC asked US District Court Judge Alison Nathan to hold Musk in contempt of court, a move he immediately criticised in a new batch of tweets.

“They should take his phone away,” said John C. Coffee Jr, a law professor at Columbia University and director of the Centre on Corporate Governance. If Musk attempts a “total frontal confrontation, he could lose very badly,” Coffee said. “The SEC has authority to suspend an officer from serving in any public corporation.”

Judge Nathan has granted a contempt order in at least one earlier SEC case. The securities regulator has pushed contempt orders before. In an unrelated 2017 case handled by Judge Nathan, the SEC said it needed to show that a judge’s earlier order was “clear and unambiguous” that proof of non-compliance with that order is “clear and convincing,” and that the party alleged to be in contempt hasn’t been “reasonably diligent and energetic in attempting to accomplish what was ordered.”

In that 2017 case, the SEC won a contempt ruling against investment manager Anvil Partners. The regulator had sought records to help determine if the firm was overstating assets it managed. When Anvil refused to produce documents requested in a subpoena, Nathan imposed a fine of US$250 a day until the records were turned over and ordered the arrest of the firm’s owner.

But the judge and the SEC may be reluctant to try to impose the equivalent of a business death penalty by ousting Musk, whose name is synonymous with Tesla, according to Karmel. “What are you trying to do, destroy the company?” she said, anticipating a likely argument from Musk.

Peter Henning, a law professor at Wayne State University, said Musk is likely to argue that he didn’t intentionally violate the settlement because, as the CEO stated in a follow-up tweet, he believed the forecast of “around 500,000” vehicles produced in 2019 was included in an earlier earnings call and was already public. — Bloomberg 

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