Tesla CEO Elon Musk is in hot water again.
Following comments on Twitter that the Securities and Exchange Commission (SEC) says violated the terms of his September 2018 settlement, Musk could find himself facing suspension and penalty fees. The comments have led to an official court order asking Musk to explain why he shouldn’t be held in contempt, which seemingly brought Tesla stocks down temporarily by roughly five percent.
In mid-February of this year, Musk tweeted that Tesla had made “0 cars in 2011 but will make around 500K in 2019.” He later published a follow-up message, explaining:
“Meant to say annualized production rate at end of 2019 probably around 500K, i.e. 10K cars/week. Deliveries for year still estimated to be around 400K.”
Last year, Musk faced criticism from the SEC after he tweeted that he could take his company private at “$420 per share.” He further stated that funding for Tesla’s privatization was in place, and all that was missing was a shareholder vote.
The SEC claimed that Musk knew almost nothing about the costs of the transition. Thus, his claims were likely not based in fact, though they led to hikes in Tesla’s stock prices and caused serious market disruption. The conditions of the settlement saw Musk removed from his role as Tesla Chairman and required the company to monitor his outgoing communications from then on.
The SEC now alleges that Musk’s latest Twitter comments violated the latter portion of this agreement and were not approved prior to posting. The agency explains:
“There was no pre-approved written communication anywhere in the January 30 communications that stated that Tesla would make around 500,000 cars in the 2019 year.”
Though Musk is still considered a first-time offender, his social media messages may force him to temporarily step down from his duties with Tesla. Musk now has four days to respond to a court order asking why he shouldn’t be held in contempt.
Following the court’s initial filing, company stocks fell by about five percent during after-hours trading, though later gained a 3.5 percent increase during early trading. Musk eventually lashed out at the Commission, tweeting:
“Something is broken with SEC oversight.”
Though Tesla’s stock prices have recovered somewhat, the incident suggests a serious lack of organization among the company’s primary executives, given there was a clear failure to acknowledge the initial tweets before they became public. The company did not do it’s job to monitor Musk’s words, and thus potentially violated the terms of the SEC settlement.
It also suggests Musk’s inability (or unwillingness) to play by the rules in that after SEC took action, he chose to lash out with another tweet. If it was a social media post that landed him in trouble the first time around, a separate one attacking the agency performing the analysis isn’t likely to make the waters boil even further, and the desire of Tesla’s shareholders wanting Musk removed implies growing discord and distrust.
In addition, Musk’s federal security clearance is under review by Pentagon authorities after he was witnessed smoking marijuana during an interview on comedian Joe Rogan’s podcast last September. Musk possesses federal security clearance through his role as CEO and founder of Space Exploration Technologies Corp., which is licensed to manufacture and launch spy satellites for the U.S. military.
The application to refile for security clearance requires the individual to list any illegal drug use over a seven-year span. Mark Zaid – an attorney that focuses on federal whistle-blower cases – comments that smoking marijuana is “absolutely grounds for termination or loss of a clearance if a federal employee or contractor currently uses.”
Major investors in Tesla and its derivatives have allegedly grown uncomfortable with Musk’s recent behavior, and seemingly want him out as CEO. James Anderson, for example, is the head of global equities for Baillie Gifford. The investment firm possesses nearly eight percent of the company’s shares and is the company’s largest shareholder after Musk. In two recent interviews, Anderson said of Musk:
“We wouldn’t be against him having a different role. I don’t think he needs to be CEO…We need to differentiate the company from him.”
Attorney Britt Latham – who specializes in securities cases – believes that the SEC is using Musk to send a lasting message to all conglomerates who run the risk of posting sensitive, exaggerated or untruthful information regarding their companies’ operations to potentially boost stock prices or profits.
“They are building their case. If they get a violation here, they could get the court to issue an order that puts some more teeth into the consequences of the next violation. Then at some point, given how unpredictable Mr. Musk is, the agency may assume he will hang himself and give them the opportunity to really take some more serious action.”