Elon Musk, Tesla attack SEC for 'unrelenting' harassment

FILE PHOTO: Tesla CEO Elon Musk attends the Tesla Shanghai Gigafactory groundbreaking ceremony in Shanghai, China January 7, 2019. REUTERS/Aly Song/File Photo

NEW YORK (Reuters) -Tesla Inc and its Chief Executive Elon Musk on Thursday accused the U.S. Securities and Exchange Commission (SEC) of harassing them with an "endless" and "unrelenting" investigation to punish Musk for being an outspoken critic of the government.

The accusation came in a letter to U.S. District Judge Alison Nathan in Manhattan, who presided over a 2018 SEC settlement stemming from Musk's tweet about a potential buyout of Tesla.

"Mr. Musk and Tesla respectfully seek a course correction," wrote Alex Spiro, a lawyer for Musk and Tesla. "Enough is enough."

The SEC declined to comment. In a one-sentence order, Nathan directed the regulator to respond by Feb. 24.

Thursday's letter escalates Musk's battle with regulators as they scrutinize his social media posts and Tesla's treatment of workers, including accusations of discrimination.

It followed Tesla's disclosure on Feb. 7 that it had received a subpoena from the SEC about its compliance with the 2018 settlement.

The SEC sued Musk in August 2018 after he tweeted he had "funding secured" to potentially take his electric car company private at $420 per share. In reality, a buyout was not close.

Tesla and Musk settled by agreeing to each pay $20 million in civil fines, and to let Tesla lawyers vet some of Musk's communications in advance, including tweets that could affect Tesla's stock price. Musk also gave up Tesla's chairmanship.

The latest subpoena was issued on Nov. 16, 10 days after Musk polled his Twitter followers on whether he should sell 10% of his Tesla stake, triggering a sell-off.


In Thursday's letter, Spiro accused the SEC of ignoring its commitment to distribute to shareholders the $40 million in fines, while instead "devoting its formidable resources to endless, unfounded investigations" into Musk and Tesla.

"Worst of all, the SEC seems to be targeting Mr. Musk and Tesla for unrelenting investigation largely because Mr. Musk remains an outspoken critic of the government; the SEC's outsized efforts seem calculated to chill his exercise of First Amendment rights," Spiro wrote.

Spiro asked Nathan to schedule a conference to find out why the SEC is "issuing subpoenas unilaterally" without court approval, and why the money isn't being distributed.

If the SEC found that Musk violated the settlement, it could ask Nathan to throw it out and reopen the case, or pursue new charges.

The letter was filed eight days after California's Department of Fair Employment and Housing sued Tesla over allegations by Black workers that it tolerated racial discrimination at its Fremont, California, plant.

Tesla called that lawsuit misguided. It is also trying to reduce or throw out an approximately $137 million jury award to a Black former elevator operator for subjecting him to a hostile work environment at the Fremont plant.

Separately on Thursday, the National Highway Traffic Safety Administration (NHTSA) opened a formal probe into 416,000 Tesla Model 3 and Model Y vehicles after receiving complaints about unexpected braking tied to its Autopilot system.

Tesla has issued 10 recalls since October, including some under pressure from the NHTSA.

Shares of Tesla closed $47.04, or 5.1%, lower on Thursday to $876.35 on Nasdaq.

The cases are SEC v Musk, U.S. District Court, Southern District of New York, No. 18-08865; and SEC v Tesla Inc in the same court, No. 18-08947.

(Reporting by Jody Godoy and Jonathan Stempel in New York, and David Shepardson in Washington; Editing by Toby Chopra, Mark Porter and Sandra Maler)

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