Elon Musk’s lawyers have now answered the court regarding the SEC’s attempt to have them hold Tesla’s CEO in contempt and it details how the federal agency is going after the automaker and its leaders in quite an absurd way over some arguably meaningless tweets.
In October, a judge approved the settlement of the SEC’s complaint against Musk over his “funding secured” comment about his attempt to take Tesla private.
One of the terms of the settlement is that Tesla’s board would have to get more oversight of Musk’s tweeting, which would need to be restrained when it comes to statements that could move Tesla’s stock.
Last month, the SEC asked a judge to hold Musk in contempt for violating the rule of the settlement with a tweet he posted a week prior:
They argued that it was new information that should have been pre-approved by Tesla before he could tweet about it.
A judge gave Musk two weeks to explain why he shouldn’t be held in contempt of his agreement with the SEC.
In a quite absurd situation, the CEO’s lawyers have now produced a 33-page document defending the benign tweet.
Musk’s lawyers argue that the information was not material:
“The 7:15 tweet was a shorthand gloss on topics that had already been covered in depth in company filings and an earnings call with analysts. Any reasonable investor would have read the tweet with reference to the much more thorough disclosures and extensive discussions on the same topic.”
They go into details about where and when the information was already disclosed prior to the tweet:
“Prior to Musk’s posting of the 7:15 tweet, the subject matter and substance of the tweet— i.e., Tesla’s projected production and rates of production for 2019—had been publicly disclosed in multiple documents and discussed at length in an earnings call. As noted above, on January 2, 2019, Tesla filed a Form 8-K reporting its Q4 2018 production of “25,161 Model S and X vehicles, consistent with our long-term run rate of approximately 100,000 per year.” Ex. 1 at 5. Then, during the January 30 Earnings Call, Musk stated that Model 3 production in 2019 would be on the order of “350,000 to 500,000” vehicles. Ex. 3 at 8. Tesla similarly disclosed in its January 30 Update and February 19 Form 10-K that it was “targeting annualized Model 3 output in excess of 500,000 units sometime between Q4 of 2019 and Q2 of 2020.” Ex. 4 at 3. Thus, whether one adds the production estimates for the three models (S, X, and 3) together or even considers projections for the Model 3 alone, Musk’s statement that Tesla would make “around 500k” “cars” in 2019 was within previously disclosed ranges. The tweet simply was not “news.””
The document also details how the SEC sent several inquiries with short deadlines to Tesla and Musk about the situation in their attempt to show that the tweet violated the settlement agreement.
Musk’s lawyers argue that what the SEC is doing amounts to an “unconstitutional power grab” and they suspect that it is retaliation for what Musk said about the SEC in a recent interview.
In a 60 minutes interview, Musk said that he has “no respect” for the SEC and he alluded that he believes the agency is working to help the shorts betting against Tesla.
The lawyers wrote in Musk’s defense:
“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.”
They claim that the SEC is inviting the court “to trample on Musk’s First Amendment rights” and they request to reject the attempt to hold him in contempt.
More back and forth between the two parties is expected before a decision is made.
Here’s the full filing with the court:
What a crazy world we live in. A billionaire, an automaker, and a federal agency responsible for protecting investors are all arguing in court over a fairly benign tweet.
Does the SEC really think that it is protecting investors here?
Who is this benefiting exactly? Only Tesla shorts and the lawyers are happy about this – and not because they think it’s the right thing, but because it’s an opportunity to make money.
That should be enough to understand that this is not right.
Now a dozen official letters and court documents about a single meaningless tweet exist out there.
It blows my mind.