Elon Musk Says Tweeting Is Free Speech in His SEC Battle
Elon Musk will not go quietly. On Monday night, lawyers representing the Tesla CEO submitted a filing to a federal judge in New York arguing that she should deny the Securities and Exchange Commission’s request to hold Musk in contempt of court for—what else?—a tweet. Musk’s legal team argued the SEC overreached in its request, and claimed the agency is trying to violate his First Amendment right to free speech.
If the judge, Alison Nathan of the Southern District Court of New York, does hold Musk in contempt of court, she would decide the penalty. “If the SEC prevails, there is a good likelihood that the District Court will fine Mr. Musk and that it will put him on a short leash, with a strong warning that further violations could result in Mr. Musk being banned for some period of time as an officer or director of a public company,” Peter Haveles, a trial lawyer with the law firm Pepper Hamilton, told WIRED last month.
This latest chapter in Musk’s ongoing legal spat with the SEC dates back to the evening of February 19, 7:15 pm Eastern Time to be exact, when Musk wrote on Twitter, “Tesla made 0 cars in 2011, but will make around 500k in 2019.” About four and a half hours later—at 11:41 pm ET—Musk corrected himself, tweeting, “Meant to say annualized production rate at the end of 2019 probably around 500k, i.e. 10k cars/week. Deliveries for the year still estimated to be around 400k.”
Musk is the head of a publicly traded company, so making a mistake about his business on Twitter—which investors treat as a valid source of news like any other—is already less than ideal. But Musk and Tesla also reached a settlement with the SEC in September over another tweet containing misinformation about the electric carmarker’s operations. That was after Musk tweeted that he planned on taking Tesla private, and that he had the “funding secured.” He soon revealed he did not have that funding secured, and Tesla announced it would stay public.
In the ensuing deal with the SEC, Musk gave up his role as Tesla’s chairman for at least three years. He and Tesla each paid a $ 20 million fine. And Musk and Tesla agreed that the CEO’s tweets about the carmaker would be truthful, and reviewed by a team of Tesla lawyers before sending. According to the filing, Tesla’s general counsel and an assigned “disclosure counsel” are in charge of approving Musk’s Tesla tweets. The lawyers write that “the disclosure counsel and other members of Tesla’s legal department have reviewed the updated controls and procedures with Musk on multiple occasions.”
In December, Musk said on CBS’s 60 Minutes that he does not respect the SEC, and that the only tweets of his that require pre-approval are those that can affect Tesla’s stock price. Asked how Tesla could know which tweets would do that, Musk said, “Well, I guess we might make some mistakes. Who knows?” The SEC cited that interview in its motion for a contempt of court charge, writing that “Musk has not made a diligent or good faith effort to comply” with the terms of his settlement.
Now, though, Musk and the SEC are debating what that “pre-approval” actually means. Tesla’s lawyers say nobody pre-approved the tweet in question, but that it shouldn’t matter, because it had already made public the information about those production numbers: in an earnings call, in end-of-year financial results, and in an SEC filing submitted on the day Musk sent out the tweets in question. Musk did not receive pre-approval before sending that tweet because it “was simply Musk’s shorthand gloss on and entirely consistent with prior public disclosures detailing Tesla’s anticipated production volume,” according to the filing.
Moreover, the Musk team argues, the SEC’s attempt to limit Musk’s tweeting is a violation of his First Amendment rights to free speech.
The Musk legal team also argues that the CEO has really worked very hard since the SEC settlement to be careful about his tweeting behavior. It wrote that Musk’s less frequent tweeting about Tesla “is a reflection of his commitment to adhering the Order and avoiding unnecessary disputes with the SEC.” In fact, it says the correction tweet, the one sent four-and-a-half hours later, “is precisely the kind of diligence that one would expect from someone who is endeavoring to comply with the Order.”