Tesla did not oversee Elon Musk’s tweets, SEC argued in letters
WASHINGTON — Securities regulators told Tesla Inc.
CEO Elon Musk’s use of Twitter last year twice violated a court-ordered policy requiring his tweets to be pre-approved by company attorneys, according to documents obtained by Wall Street. Newspaper.
Tesla and the Securities and Exchange Commission settled enforcement action in 2018 alleging Mr. Musk had committed fraud by tweeting about a possible takeover of his company. Mr Musk paid $ 20 million to settle this case – Tesla also paid $ 20 million – and agreed to have his public statements on social media overseen by Tesla’s attorneys.
In correspondence to Tesla in 2019 and 2020, the SEC said the tweets Mr. Musk wrote about Tesla’s solar roof production volumes and that its stock price was not subject to review. pre-approval required by Tesla’s attorneys. The communications, which were previously unreported, highlight the continuing tension between the nation’s leading business regulator and Mr Musk, who publicly mocked the SEC even after settling the fraud complaints with the agency.
The SEC told Tesla in May 2020 that the company did not “apply these procedures and controls despite Mr. Musk’s repeated violations.” The letter, signed by Steven Buchholz, a senior SEC official in his San Francisco office, added: “Tesla has abdicated the duties imposed on him by the court order.”
Tesla, Mr. Musk and the SEC did not respond to requests for comment. The Journal obtained the records under a federal Freedom of Information Act request.
Mr. Musk’s skirmish with the SEC is part of a model by him and Tesla of bending the rules or avoiding enforcement attempts, the Journal reported in April. Tesla also clashed with the National Transportation Safety Board and state officials for occupational safety and health in Nevada. Another company run by Mr. Musk, SpaceX, has also had a sometimes controversial relationship with the Federal Aviation Administration.
The pre-approval requirement was an unusual condition of SEC enforcement action that regulators have touted as a way to improve Tesla’s corporate governance following the 2018 investigation. also provided for Mr. Musk to step down from his role as chairman and for Tesla to appoint two independent directors. Mr. Musk and Tesla resolved the SEC investigation without admitting or denying the wrongdoing.
From the start, social media policy was difficult for the SEC to enforce. The SEC charged Mr. Musk with breaking the rules in February 2019 and asked a Manhattan federal court to consider convicting him of contempt. The judge said she wanted both sides to resolve the dispute and they agreed to change the policy by clarifying matters requiring prior approval. These were identified as including communications on production figures, new lines of business and the financial situation of the company.
Within months, the SEC was writing Tesla again, questioning a tweet Mr. Musk wrote on July 29, 2019, which read: “Rapid deployment of the production line. Hoping to build around 1,000 solar roofs / week by the end of this year.
This tweet fell under the obligation to verify all public messages that concerned “production numbers or sales or delivery numbers,” the SEC wrote in an August 2019 letter to Tesla. Tesla told the agency that Mr Musk did not submit the tweet for review and that a committee later determined he did not need permission because it was “totally ambitious,” according to the SEC account of his correspondence with the company.
Less than a year later, on May 1, 2020, Tesla shares plummeted after Mr. Musk tweeted, “Tesla’s share price is too high imo.” This again prompted a letter from Mr Buchholz.
Tesla told the agency that his attorneys had not reviewed the tweet, which the company called a “personal opinion” that did not require clearance, according to SEC correspondence. When the SEC searched for documents related to the tweet, Tesla said there were none, the agency wrote in a May 8, 2020 letter to Tesla. Mr. Musk’s tweet focused on the company’s financial condition, a subject matter of policy, the SEC wrote.
“In the face of Mr. Musk’s repeated refusals to submit his covered written communications on Twitter to Tesla for pre-approval, we are deeply concerned by Tesla’s repeated determinations that there have been no policy violations due to alleged exclusions. “the SEC said. written in this letter.
Tesla’s outside lawyer responded later in the month that tweeting about Tesla’s share price was not covered by the deal, according to a copy of a letter obtained separately by the Journal. Lawyers said regulators attempted to “harass Tesla and silence Mr. Musk” with investigations that “overlapped endlessly.”
“The serial nature of these investigations leaves us gravely concerned that the SEC is targeting Mr. Musk for improper purposes,” wrote attorney Alex Spiro.
Mr Musk, who has at times sharply criticized regulators, lashed out at the agency soon after, tweet in july, “SEC, three-letter acronym, the middle word is Elon’s.”
The SEC said in a June 2020 letter to Tesla’s attorneys that it hoped to resolve the disagreements without going to court. The regulator wrote that Tesla and his lawyers “refused to engage in any substantive dialogue regarding the May 1 tweet.”
The feud appears to have ended in a stalemate with no further consequences for Tesla or Mr. Musk, the correspondence suggests. Tesla’s attorneys disputed the SEC’s claims about the tweets, and the SEC never went back to court to ask a judge to intervene.
The SEC ended a June 2020 letter with a demand: “We urge the company to reconsider its positions in this matter by taking action to implement and enforce disclosure controls and procedures … to avoid new ones. damage to shareholders. “
Disputes over Mr. Musk’s tweets don’t mean the policy was wrong, said Jill Fisch, a law professor at the University of Pennsylvania. Businesses and CEOs are still working on how to use social media, she said, and monitoring regulators can help make things better. Executives like Mr Musk, who wields a strong influence in the markets, deserve special attention, she said.
“It is difficult to write a court order that allows some communication but potentially restricts or controls it,” Ms. Fisch said. “The first time, it will be an imperfect tool.”
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