As someone addicted to the brain poison that is Twitter, the most relatable thing about Elon Musk, to me, is his inability to stop tweeting, despite the severe personal and professional harm his tweets have incurred upon him.
Musk has been in the penalty box ever since settling a lawsuit brought against him by the SEC over a tweet he sent in August of 2018:
Tesla’s stock price shot up after the the tweet, but it turned out that Musk did not have funding secured. Under U.S. securities law, it’s illegal for the CEO to offer up misleading, market-moving information, and the SEC hit Musk with a lawsuit. Musk and Tesla settled with the SEC, and part of the agreement required Musk to get “preapproval” from Tesla lawyers before publishing any potentially market-moving statements, something he failed to do before tweeting this on February 19:
He then followed up with this clarification, saying the number would be closer to 400,000.
When the SEC got up in arms, Musk mocked them, saying they must have somehow missed all of this information on Tesla’s earnings call, which gave a range of possible production numbers, from as low as 350,00 to as high as 500,000.
But the issue at hand isn’t whether Musk was right or wrong in any of his previous tweets or even if the tweets caused the markets to move; it’s whether Musk and Tesla were upholding their agreement for Musk to obtain preapproval from Tesla’s lawyers. Per the SEC and Tesla’s own admission, he did not.
On Monday, the SEC asked a judge to hold Musk in contempt for violating the terms of his agreement with the SEC:
Musk has not made a diligent or good faith effort to comply with the provision of the Court’s Final Judgment requiring pre-approval of his written communications about Tesla. Less than two months after the Court entered its Final Judgment, Musk publicly indicated that he was not serious about compliance with this provision. […] In fact, in response to the SEC’s February 20 request for information, Musk and Tesla state that, since Tesla’s Policy was implemented in December 2018, Musk’s tweets have been reviewed after their publication, but there is no suggestion that Musk has sought or obtained pre-approval of any tweet prior to publishing it.
News of the SEC filing sent Tesla’s stock price crashing by 3 percent before the markets closed on Monday, and then fell another 5 percent in after market trading. Undeterred, Musk was still at it this morning, continuing to tweet his disdain for the SEC:
The potential consequences for Musk and for Tesla are very real. The SEC could seek further fines from Musk and Tesla — both Musk and Tesla have already paid $20 million in fines apiece for his August tweet. It could also seek to further restrict Musk’s ability to use of Twitter and other social media platforms. The biggest stick the SEC wields is the power to bar Musk from running a publicly traded company — a nearly unprecedented step, but Musk and the SEC are in unprecedented territory.
“They have to view the conduct as akin to another violation of securities laws to take this step,” said Brad Bennett, a former head of enforcement at the Financial Industry Regulatory Authority who previously worked as an SEC enforcement attorney, speaking to Bloomberg. “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.”
Tesla boosters can point to all the ways Musk’s being a one-of-a-kind CEO has benefited Tesla — his outsize ambitions have spurred both Tesla and the electric vehicle industry in general to go further and faster than it would have otherwise. But one of the basic requirements of being a CEO is following securities law. If Musk can’t manage to find a way to do that, he may not remain CEO for much longer.