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Tesla CEO Elon Musk reaches new agreement with US stock market regulators over social media abuses

Elon Musk And The US Securities And Exchange Commission (SEC) Told US Court That They Have Reached A Deal To Settle Their Differences Over The Tesla Chief Executive's Twitter Use.

PTI | Updated on: 27 Apr 2019, 06:38:34 AM
Elon Musk (File Photo)

New York:

Tesla CEO Elon Musk and the US Securities and Exchange Commission (SEC) on Friday told US court that they have reached a deal to settle their differences over the Tesla chief executive's Twitter use.

Notably, settlement between Musk and the US stock market regulators sets out clearer guidelines on topics Tesla CEO should avoid on Twitter or other social media, including statements about acquisitions, mergers, new products and production numbers.

According to the agreement, filed in federal court in the Southern District of New York, Musk would have to adhere to Tesla rules regarding potentially significant comments by executives and have tweets or other social media posts pre-approved by an experienced securities lawyer employed by the company.  

"The parties have reached an agreement to resolve the commission's pending contempt motion," a joint court filing said.

If the terms of the agreement are approved by a judge, Musk will not be held in contempt for skirting an earlier settlement with the SEC. That first settlement with the agency followed rogue tweets by Musk that falsely suggested Tesla would be taken private at $420 a share, an assertion that temporarily pumped up the company's lagging stock price.

A Friday deadline set by US District Judge Alison Nathan was extended until April 30 after Musk and the SEC asked for time to have a final version of the settlement ready to submit for court approval.

The SEC said in the filing that the proposed settlement "is fair, reasonable, and in the interest of the parties and investors because the proposed revisions will provide additional clarity regarding the written communications for which the defendant is required to obtain pre-approval."

SEC officials had originally argued Musk should be held in contempt of court for allegedly violating an earlier settlement on tweeting potentially market-sensitive information without having it reviewed by counsel.

At a hearing earlier this month, Nathan ordered both sides to try to work out their differences, suggesting she could rule on the case if the talks failed.

The judge appeared sympathetic at times with some of the government's arguments, but she also expressed significant reservations about finding Musk in contempt, which she said was "serious business" and a ruling that placed a "significant burden" of proof on the government.

The settlement, which allowed Musk to remain as CEO, required him to obtain pre-approval from Tesla counsel before making written communications "that contain, or reasonably could contain, information material to Tesla or its stockholders."

The SEC cracked down after Musk tweeted on February 19 that Tesla would make 500,000 cars in 2019 - up from the 400,000 that the company had estimated until then, an apparent increase on a benchmark tied to profitability.

Musk corrected himself four hours later, saying that Tesla would indeed produce about 400,000 cars this year.

SEC attorney Cheryl Crumpton argued that the February 19 tweet and the fact that Musk had not submitted any tweets for pre-publishing review showed he had made no serious effort to follow the requirement.

John Hueston, an attorney representing Musk, had countered that Musk's February 19 tweet was not consequential to investors, and that the language in the settlement was ambiguous on what types of information needed to be reviewed prior to publication.

He also argued that the SEC had been hasty in seeking a contempt ruling without first trying to confer with Musk.

Importantly, Tesla shares that finished the official trading day down five percent regained a little ground to USD 237.30 in after-market trading.

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First Published : 27 Apr 2019, 06:37:30 AM