By Jonathan Stempel
NEWYORK (Reuters) – Elon Musk’s lawyers said that the U.S. Securities and Exchange Commission failed to satisfy its heavy burden of showing that the Tesla Inc chief executive should be held in contempt, and the tweet prompting its contempt motion was both proper and “not material.”
In a Friday filing in Manhattan federal court, Musk’s lawyers also said their client “respects his obligations” to the electric car company, its shareholders and the court.
Musk is trying to avoid being held in contempt for violating his October 2018 fraud settlement with the SEC, for having tweeted at 7:15 p.m. EST on Feb. 19 to his over 24 million Twitter followers that Tesla could build around 500,000 vehicles in 2019.
SEC spokesman Ryan White declined to comment.
Musk’s settlement, including $20 million (£15.1 million) civil fines for both him and Tesla, resolved an SEC lawsuit over an Aug. 7, 2018 Twitter post in which Musk said he had “funding secured” to take his Palo Alto, California-based company private at $420 a share.
The SEC said Musk committed a “blatant” violation of that settlement by tweeting about Tesla’s production outlook without first seeking approval from the company’s lawyers.
In a Monday filing, the SEC went farther, complaining that Musk had never after the settlement sought pre-approval for any Tesla-related tweets.
But in Friday’s filing, Musk’s lawyers said the SEC had conceded during settlement talks that Tesla-related tweets were not subject to a broad pre-approval requirement.
They also said the tweet was not material because it simply restated old news, used generalities, was “aspirational and optimistic,” and did not move Tesla’s share price.
“The key question is whether Musk complied with Tesla’s policy, not whether the SEC is satisfied with Tesla’s policy,” Musk’s lawyers wrote. “Musk’s belief that the 7:15 tweet did not require pre-approval was correct.”
Musk has until March 26 to tell U.S. District Judge Alison Nathan whether he wants an evidentiary hearing on the contempt motion. The SEC has said no hearing is necessary.
The October settlement required Musk to step down as Tesla’s chairman. Legal experts said a contempt finding could subject him to a higher fine, further restrictions on his activities, or even removal from Tesla’s board or as chief executive.
Tesla shares closed Friday down $9.49, or 3.5 percent, at $264.53. They are 32 percent below their peak set on Aug. 7, after the “funding secured” tweet.
The case is SEC v Musk, U.S. District Court, Southern District of New York, No. 18-08865.
(Reporting by Jonathan Stempel in New York, editing by G Crosse and Diane Craft)