Tesla CEO Elon Musk arrives at the federal court in New York on April 4, 2019. The SEC says Musk ... [+]
(Story updated to include Judge Alison Nathan's April 5 order.)
Elon Musk appears to have survived a threat to his job as Tesla’s CEO after a federal judge gave the mercurial billionaire who runs the electric-car maker and the Securities & Exchange Commission two weeks to work out their dispute over his unconventional Twitter habits.
Musk attended the hearing Thursday in the U.S. court for the Southern District of New York where his lawyers argued before Judge Alison Nathan that he hadn’t shown contempt for the settlement reached with the SEC last year, the result of inaccurate tweets he made about taking Tesla private. Nathan instructed the two sides to meet for “at least an hour” over their dispute and gave them until April 18 to send a letter to the court and indicating whether or not a resolution was reached.
“If no agreement has been reached, the Court will issue a decision resolving the current SEC motion to hold Mr. Musk in contempt,” Nathan said in order posted on April 5. “If Mr. Musk is held in contempt, the Court will allow further briefing on sanctions.”
During the hearing Nathan said she had “serious concerns that whatever I decide here the issue will not be finally resolved,” according to Bloomberg. For his part, Musk was pleased with the day’s outcome–to the point of gloating.
“I have great respect for Judge Nathan, and I’m pleased with her decision today,” he said in a statement. “The tweet in question was true, immaterial to shareholders, and in no way a violation of my agreement with the SEC.”
(In fact his February tweet about production volume, in which he stated Tesla would “make around 500k in 2019” was at least 100,000 units over the official goal, and he corrected it hours later. Tesla also restated its 360,000-400,000 goal in an April 3 release.)
“We have always felt that we should be able to work through any disagreements directly with the SEC, rather than prematurely rushing to court,” Musk said on Thursday. “Today, that is exactly what Judge Nathan instructed.”
The hearing stemmed from the October 2018 deal that forced Musk out of his role as company chairman, cost him and Tesla $40 million in fines and stipulated that his social media posts be reviewed in advance whenever he discussed information material to Tesla’s business. In February, he appeared to violate terms with another inaccurate tweet, this one about Tesla production, which led the SEC to ask Nathan to find him in contempt of the settlement.
“Contempt is extremely serious and seldom used by the SEC,” Elliot Lutzker, a former SEC attorney who is now Chairman of Corporate Group for Davidoff Hutcher & Citron LLP, said in an interview prior to the hearing. “Usually it”s been used against habitual violators of federal securities laws who’ve been enjoined several times.”
Although the SEC had not requested any specific punishment, if Nathan agreed with the securities regulator’s claim she could have taken actions ranging from warning Musk, fining him or even pushing him out of his role as a Tesla board member or CEO. Such a move might have been devastating for the Silicon Valley company given that Musk has long since become synonymous with Tesla.
Many of Musk’s problems from the past year are self-inflicted wounds, particularly with regard to his liberal use of Twitter where he has more than 25 million followers.
Aside from the SEC dustup, Tesla faces investor lawsuits related to Musk’s privatization tweets, and Musk personally faces a defamation lawsuit filed last year by a British man who aided in the rescue of a young soccer team trapped in a cave in Thailand who Musk called a “pedo” on Twitter. Tesla is also contending with a class-action suit related to its 2017 acquisition of SolarCity and litigation sparked by its 2018 CEO performance award for Musk.
As the leader of a high-profile public company, Musk is a curiosity, said Taya Cohen, associate professor of organizational behavior and theory at Carnegie Mellon University.
“He’s clearly very creative and innovative and different than others which, when it comes to technology, is something we often value,” Cohen said. “But the other side of being a CEO is being the face, doing a lot of the political things. That’s not where it seems like he sees himself or wants to be, because he has all these controversies over things that should be avoided.”
Prior to Nathan’s decision, lawyer Lutzker accurately predicted the outcome.
“The judge is going to get both sides to come to a modification of the settlement because I don’t think she wants to hurt the shareholders anymore than she has to,” he told Forbes. “With all these civil proceedings pending, whatever the court decides is really going to have an impact on civil litigation.”
Despite the positive outcome for Musk in Manhattan, Tesla shares plunged Thursday after it announced weaker-than-anticipated first-quarter delivery results a day earlier. The stock fell 8.2%, or $24.03, to $267.78 in Nasdaq trading.
