Wed, Mar 20, 2019 - Page 10 News List

Musk defense ‘borders on ridiculous’

CONTEMPTUOUS:SEC lawyers said that Musk interpreted the settlement order requiring preapproval to only apply if he deemed a tweet meaningful to investors

AP, DETROIT, Michigan

US regulators on Monday night countered Tesla Inc CEO Elon Musk’s contempt-of-court defense, writing in court papers that he brazenly disregarded a federal judge’s order and that one of his arguments “borders on the ridiculous.”

Lawyers for the US Securities and Exchange Commission (SEC) wrote that when the contempt motion was filed last month, Musk had not had a single tweet approved by a company lawyer, violating a requirement of a court-approved settlement order.

The securities fraud settlement in October last year stemmed from tweets by Musk in August about having the money to take Tesla private at US$420 per share, but Musk did not have the funding secured.

Tesla and Musk each had to pay US$20 million in fines and agree to governance changes that included Musk’s removal as chairman.

SEC lawyers led by Cheryl Crumpton wrote in a response to Musk’s defense that he interprets the settlement order as not requiring preapproval unless Musk decides the tweets are meaningful to investors.

Musk’s argument that tweeting about car production forecasts on Feb. 19 was not material information is nearly ridiculous, the agency said.

“His interpretation is inconsistent with the plain terms of this court’s order and renders its preapproval requirement meaningless,” the lawyers wrote.

US District Judge Alison Nathan in Manhattan is to decide if Musk is in contempt and whether he should be punished.

The SEC said no hearing is necessary on the matter “because there appear to be no disputed issues of material fact.”

Musk’s lawyers last week wrote that the Feb. 19 tweet merely restated previously approved disclosures on electric vehicle production volumes.

The tweet, which was published after the markets closed, neither revealed material information nor altered the mix of data available to investors, they said.

The lawyers also accused the SEC of censorship and of violating Musk’s First Amendment rights by imposing a prior restraint on his speech.

However, the SEC lawyers wrote that submitting statements for approval does not mean Musk is prohibited from speaking.

“As long as a statement submitted for preapproval is not false or misleading, Tesla would presumably approve its publication without prior restraint on Musk,” they wrote.

The SEC also said that Musk waived any First Amendment challenge to the order when he agreed to it.

Musk’s lawyers also argued that the SEC’s motion for contempt is an over-reach that exceeds its authority, but the SEC said that enforcement of the order is up to the judge, who has broad powers to enforce court orders.

Monday’s filing said that the Feb. 19 tweet was different from prior public disclosures by the company.

Musk has also regularly published tweets with “substantive information” about the company and its business, the SEC said.

Musk’s 13-word Feb. 19 tweet said that Tesla would produce about 500,000 vehicles this year, but it was not approved by the company’s “disclosure counsel,” the SEC has said.

The lawyer quickly realized it and summoned Musk to the company’s Fremont, California, factory to help write a correction.

The company would make vehicles at a rate of 500,000 per year, but it would not produce that much this year.

Musk’s response by former Enron prosecutor John Hueston of Newport Beach, California, said that the settlement allows Musk “reasonable discretion” to determine if his communications would require the lawyer’s approval. In the case of the Feb. 19 tweet, Musk determined that it did not.

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