NEW YORK (BLOOMBERG) - Elon Musk is facing a new round of regulatory trouble for tweets about Tesla Inc, raising fresh concerns about the billionaire chief executive's ability to keep his impulses in check and responsibly run a public company.
The United States Securities and Exchange Commission (SEC) on Monday (Feb 25) asked a judge to hold Mr Musk in contempt for violating a settlement that required him to get Tesla approval for social media posts and other writings that could be material to investors. He breached that deal with a Feb 19 tweet that said Tesla would make about half a million cars in 2019, the agency claims. The CEO posted a few hours later that deliveries would only reach about 400,000.
The SEC's move puts Mr Musk in fresh legal peril less than five months after he settled claims that he misled the public with tweets about taking the electric-car maker private. He could face a variety of penalties, with the stiffest being that he will be barred from running Tesla or any other public company for a period of time, said Mr Charles Elson, director of the John L. Weinberg Centre for Corporate Governance at the University of Delaware.
"Having your CEO in contempt of an SEC action is a pretty bad thing," Mr Elson said in a phone interview. "They settled with him and within a few months he's back to doing similar things. It's unbelievable."
Calls to Tesla and e-mails to Mr Musk and his representative were not immediately returned. In a tweet after the filing, Mr Musk said the SEC overlooked a comment he made on the company's Jan 30 earnings call that Tesla may make as many as 500,000 of its Model 3 sedans this year.
US District Judge Alison Nathan, who is handling the case, has not scheduled a hearing to weigh the contempt request or set a date for Mr Musk or Tesla to respond to the filing. The news sent Tesla shares plunging as much as 5.4 per cent after hours. The stock was already down 10 per cent this year through the close of regular trading.
Losing Mr Musk, the principal architect of Tesla's vision of a future where electric vehicles and solar power reduce humanity's dependence on greenhouse gases, would be gutting for the company. The automaker has relied on its CEO not just for technology leadership but for its bold, anti-establishment image. But the cult of personality has also had a downside for Tesla, with Mr Musk sending the stock into a tailspin with antics such as smoking pot on a Web video or insulting an analyst on a conference call.
"Musk continues to be reckless with Twitter," said Mr Gene Munster, a managing partner at venture capital firm Loup Ventures. "If you were hoping for him to change, it's clear that it's not going to happen. It's unfortunate because it's a needless distraction from the company's world-class product line."
Mr Musk's initial round of regulatory scrutiny came in August, when he posted on Twitter that he was considering taking the company private at US$420 (S$567) per share and had funding secured. In its September lawsuit, the SEC said Mr Musk had not discussed any specific deal terms with any funding partners and knew the potential transaction was uncertain. The accord required Mr Musk and the company to each pay a US$20 million penalty and also barred him from serving as chairman for at least three years.
Statements tied to the Model 3, Tesla's lower-priced electric car, have also caught the SEC's attention. The agency and the Justice Department have both sought information from Tesla over forecasts made in 2017 about Model 3 production. The carmaker started making the sedan that year and fell well short of Mr Musk's projections.
The SEC alleged on Monday that Mr Musk "once again published inaccurate and material information about Tesla to his over 24 million Twitter followers, including members of the press, and made this inaccurate information available to anyone with Internet access", according to court papers filed in Manhattan federal court.
The tweet said: "Tesla made 0 cars in 2011, but will make around 500k in 2019." Later, Mr Musk clarified to say the company's annualised production rate at end of the year would probably be around 500,000.
The next day, Tesla announced that its general counsel was leaving, just two months after the company hired him.
The SEC "has to view the conduct as akin to another violation of securities laws to take this step", said Mr Brad Bennett, a former SEC enforcement attorney. "It's a very novel situation where someone is running an enterprise with this kind of market cap and gives the SEC cause for concern that the person is not capable of following the securities laws."
In its defence, Tesla lawyers said Mr Musk was trying to "recapitulate" a pre-approved statement from the company's earnings call stating that the company would get production to 10,000 vehicles a week by the end of the year, according to the attorneys' letter last Friday to the SEC, included in court filings on Monday. Tesla attorneys stressed that the company and Mr Musk take their settlement with the SEC seriously.
Since agreeing to the settlement, Mr Musk has antagonised Wall Street's main regulator. A few days after the Sept 29 agreement, he dubbed the SEC as the "Shortseller Enrichment Commission" in a tweet. In December, Mr Musk told Ms Lesley Stahl of 60 Minutes that he didn't respect the agency.
"It's very clear that the SEC is not happy with Musk," said associate professor of law Stephen Diamond at Santa Clara University who specialises in corporate governance. "Musk is on a self-destructive path. He's the controlling stockholder but he's not respecting the rights of other shareholders."