NEW YORK, April 27, 2019 (BSS/AFP) – Elon Musk and US stock market
regulators told a US court on Friday that they have reached a deal to settle
their differences over the Tesla chief executive’s Twitter use.
The settlement between Musk and the Securities and Exchange Commission
sets out clearer guidelines on topics Musk should avoid on Twitter or other
social media, including statements about acquisitions, mergers, new products
and production numbers.
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,”
according to the proposed settlement.
“The parties have reached an agreement to resolve the commission’s pending
contempt motion,” a joint court filing said.
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 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.
– Truce? –
If approved, the settlement would mark a truce in Musk’s dispute with the
SEC after an October agreement required him to step down as chairman and pay
$20 million to settle charges he defrauded investors with false claims on
Twitter in August about a possible bid to take the company private, which was
quickly aborted.
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.
– Sputtering deliveries –
Word of a settlement came just days after Tesla disclosed a heavy loss in
the first quarter as car deliveries sputtered overseas and a US tax credit
that made its prices more attractive was reduced.
The California-based company reported a loss of $702 million in the first
three months of this year after two consecutive quarters of profit.
Tesla produced about 63,000 Model 3 vehicles in the period, an increase of
three percent from the same quarter a year earlier but fewer than had been
anticipated.
The company attributed its disappointing financial results to Model 3
shipping delays, particularly in Europe and China.
Overall company revenue in the period rose 33 percent to $4.5 billion in a
year-over-year comparison, but fell far short of Wall Street forecasts.
Tesla was confident it would get past the financial speed-bumps and into a
smoother road to improved fortune.
The company expected to remain on course to deliver between 360,000 and
400,000 vehicles in total this year, topping 2018 numbers by at least 45
percent.
Tesla shares that finished the official trading day down five percent
regained a little ground to $237.31 in after-market trading.