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Tesla says the Securities Exchange Commission is attempting to violate CEO Elon Musk’s First Amendment rights in retaliation for his televised criticism of regulators.
Musk agreed in October to settle an SEC fraud complaint related to his tweets touting that he had “funding secured” to take the automaker private. As part of the settlement, Musk agreed to have potentially market-moving tweets reviewed before hitting send.
The SEC then said a tweet from Musk violated the agreement and asked a judge to hold him in contempt.
Musk tweeted on February 19 that “Tesla made 0 cars in 2011, but will make around 500k in 2019.” A follow-up tweet a few hours later updated the delivery number to 400,000 cars this year.
Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week. Deliveries for year still estimated to be about 400k.
— Elon Musk (@elonmusk) February 20, 2019
Regulators didn’t like the discrepancy, saying in court papers that Musk “once again published inaccurate and material information about Tesla to his over 24 million Twitter followers” and did not seek company approval before publishing his tweet.
Musk’s legal team says he used appropriate discretion and the tweet did not contain information material to Tesla.
“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,” Musk’s attorneys wrote in a court filing. “Any reasonable investor would have read the tweet with reference to the much more thorough disclosures and extensive discussions on the same topic.”
Lawyers then offered a list of instances the same information was publicly disclosed.
“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.'”
Musk’s lawyers said the SEC’s interpretation would raise “serious First Amendment issues and implicate other constitutional rights.”
“The SEC seeks to rewrite the Order to eliminate Musk’s discretion, effectively requiring Musk to seek pre-approval of any tweet that relates to Tesla, regardless of its significance, prior dissemination, or nature,” Musk’s lawyers wrote. “Such a broad prior restraint would violate the First Amendment. Moreover, the SEC seeks to procure through a contempt proceeding enforcement power that is far broader and less clearly defined than the power Congress has granted it via statute. The Court should construe the Order narrowly to avoid applying it in a way that would raise significant constitutional concerns.”
Musk’s lawyers suggested the regulator is conducting “unprecedented overreach” to counter the CEO’s “sincerely-held criticism of the SEC on 60 Minutes.”
During a recent interview with 60 Minutes reporter Leslie Stahl, Musk said: “I want to be clear. I do not respect the SEC.”
He also admitted to posting without approval.
Lesley Stahl: So your tweets are not supervised?
Elon Musk: The only tweets that would have to be say reviewed would be if a tweet had a probability of causing a movement in the stock.
Lesley Stahl: And that’s it?
Elon Musk: Yeah, I mean otherwise it’s, “Hello, First Amendment.” Like Freedom of Speech is fundamental.
Lesley Stahl: But how do they know if it’s going to move the market if they’re not reading all of them before you send them?
Elon Musk: Well, I guess we might make some mistakes. Who knows?
Lesley Stahl: Are you serious?
Elon Musk: Nobody’s perfect.
Musk’s 33-page response to the SEC’s request to hold him in contempt is available here.