SEC 'stunned' Musk didn't seek required approval for Tesla tweets

Tesla CEO is misinterpreting agreement over tweets containing material information about the automaker, the SEC says in a filing.

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Tesla Motors CEO Elon Musk speaks to the media next to its Model S during a press conference in Hong Kong. 25JAN16  SCMP/ Nora Tam

Tesla Motors CEO Elon Musk is misinterpreting his agreement with the SEC over tweets about the automaker, the agency says.

Nora Tam/South China Morning Post via Getty Image

The Securities and Exchange Commission said Monday it was stunned to learn that CEO Elon Musk hasn't sought preapproval for any of his tweets about the car maker before the agency's contempt motion last month.

The SEC was responding to a filing last week by Musk's lawyers defending tweets he made about Tesla's production estimates. An agreement struck last September between Musk and the SEC forbade the CEO from using social media to divulge information that would be considered material to investors or Tesla without having gotten prior approval.

"The pre-approval requirement was designed to protect against reckless conduct by Musk going forward," SEC lawyers wrote in a filing Monday (see below). "It is therefore stunning to learn that, at the time of filing of the instant motion, Musk had not sought pre-approval for a single one of the numerous tweets about Tesla he published in the months since the Court-ordered pre-approval policy went into effect."

The SEC's filing goes on to call Musk's interpretation of the settlement agreement "inconsistent with the plain terms of this Court's order and renders its preapproval requirement meaningless."

Musk's problems with the SEC began last August, when he tweeted: "Am considering taking Tesla private at $420. Funding secured." That amounted to a false and misleading statement to investors and the public, according to the SEC. The ensuing legal battle led to the aforementioned agreement -- as well as Musk stepping down as chairman of Tesla's board and paying a $20 million fine.

The SEC in late February moved to hold Musk in contempt of court for violating that agreement with his tweets about Tesla's production estimates.

"Tesla made 0 cars in 2011, but will make around 500k in 2019," Musk tweeted. He clarified about 30 minutes later, "Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week. Deliveries for year still estimated to be about 400k."

In a filing last week, Musk's lawyers said there was no basis for sanctions against him because the Feb. 19 tweet "did not contain information that could reasonably be considered material" and called the contempt motion an "unconstitutional power grab."

Tesla representatives didn't immediately respond to a request for comment.