SAN FRANCISCO (Reuters) – The U.S. Tesla Inc. Chief Executive Officer Elon Musk has violated a fraud settlement by making new inaccurate statements on Twitter, pursuing a contempt order against the electric car chief and sending shares of the company down 5 percent in extended trade.
The SEC's request could potentially reopen a turbulent chapter for the electric vehicle maker in which regulators last year accused Musk of fraud for making misleading tweets about plans to take the company private and demanded that he be stripped of his CEO title.
Musk, Tesla and the SEC settled the lawsuit, and part of the settlement called for any material statements made by Musk on social media to be vetted in advance by the company.
In a court filing on Monday, the regulator pointed to a Musk Feb. 1
"Musk has thus violated the court's final judgment by engaging in the very conduct that the pre-approval provision of the final judgment was designed to prevent," the SEC wrote in its motion filed Monday at the federal court in Manhattan.
Musk corrected his tweet four hours later to say that the "annualized production rate" at year-end 2019 would probably be around 500,000, with deliveries expected to be about 400,000.
The motion asks the judge to issue a order that would put the onus on Musk to show why he should not be held in contempt for violating the settlement.
Tesla did not immediately reply to a request for comment.
Tesla and Musk agreed in September to pay $ 20 million each to SEC, and the billionaire stepped down as the company's chairman, but remained as chief executive. In the settlement, the agency pulled back from its original demand that Musk, who is synonymous with the Tesla brand, be barred from running Tesla, and sanction many investors said would be disastrous.
The settlement was approved by a U.S. judge in October, who can now decide whether his terms have been violated.
Musk provoked the SEC even after the settlement was signed, calling the agency "Shortseller Enrichment Commission" on Twitter in October.
In a December interview with "60 Minutes," Musk said none of his tweets had been censored since the settlement, and that only those that could cause Tesla stock to move would need to be reviewed.
"I want to be clear. I do not have respect for the SEC, "he said, adding that he respected the justice system.
In response to the SEC's demand for information on Feb. 19 tweet, a lawyer for Tesla and Musk, said the CEO's tweet was meant to reiterate information already approved, then disseminated when the company released fourth-quarter earnings results in January.
Although the tweet was not pre-approved, the lawyer wrote, Musk believed its substance had been "appropriately vetted, pre-approved and publicly disseminated." Moreover, the lawyer said, the statement was made outside of the trading hours.
It was not clear what the repercussions would be. Musk was found in contempt, as such a citation does not necessarily mean that the original agreement is now null and void.
The SEC could seek a so-called bar order, removing him from Tesla's board, or could ask for a lesser penalty, like a monetary fine, said Stephen Diamond, a professor of corporate governance at Santa Clara University.
The SEC could also ask the court to reopen the original settlement for renegotiation, he said, perhaps asking for the original charges to be reinstated.
Tesla's board has added new members as part of the settlement, moves that some outsiders hope will increase oversight of Musk. Board member Robyn Denholm was also made chairwoman after Musk was stripped of that role, but she did not comment on the new incident.
Charles Elson, director of corporate governance at the University of Delaware, said Tesla's board "needs to seriously reconsider the company's relationship with Mr. Musk. "
" The board needs to act. End of story. And if they do not, the question is how responsible are they? "
Reporting by Akansha Rana and Ankur Banerjee in Bengaluru, Jan Wolfe in Washington and Alexandria Sage in San Francisco; editing by Sriraj Kalluvila, Jonathan Oatis and G Crosse