NEW YORK (Reuters) – Elon Musk may be able to keep his job as Tesla Inc’s chief executive even if found in contempt for a Twitter post that violated his recent fraud settlement with the U.S. Securities and Exchange Commission, a lawyer for the regulator suggested at a Thursday court hearing.
The lawyer, Cheryl Crumpton, said the SEC would ask that Musk face further sanctions and greater fines for any future violations if held in contempt, but stopped short of recommending that he face removal from Tesla’s board or helm.
Crumpton’s comments to U.S. District Judge Alison Nathan in Manhattan lifted a possible drag on Tesla’s share price.
The shares recouped some of their earlier losses as she spoke, following a slide after a Wednesday night report of lower-than-expected vehicle deliveries. They were down 7.5 percent in late afternoon trading.
Nathan is considering whether to hold Musk in contempt over a Feb. 19 tweet, where according to the SEC he improperly posted material information about Tesla’s vehicle production outlook without first seeking approval from company lawyers.
The SEC said pre-approval had been a core element of the October 2018 settlement, which resolved a lawsuit over Musk’s tweet last Aug. 7 that he had “funding secured” to take Tesla private at $420 per share.
That settlement called for Musk to step down as Tesla’s chairman, and levied $20 million civil fines each on Musk and the Palo Alto, California-based company.
“NOT WORTH IT”
Speaking in a packed courtroom, Crumpton said that if Musk were held in contempt, the SEC might ask Nathan to require him to make regular reports to the regulator, including whether Tesla lawyers were vetting his statements and if not why.
Noting that Musk had called his $20 million fine “worth it,” she said higher fines for future violations might be needed to ensure that further backsliding would be “not worth it.”
Crumpton also faulted what she called Tesla’s “troubling” conduct. “Tesla still appears to be unwilling to exercise any meaningful control over the conduct of its CEO,” she said.
Musk’s lawyer, John Hueston, countered that the “ambiguity” of the settlement made any further punishment unfair.
“There simply is not a clear enough standard to use the hard penalty of contempt,” he said.
Musk sat quietly with his lawyers, sometimes staring down at paperwork, during oral arguments. The SEC did not accuse Tesla of contempt.
SEC CALLS TWEET “OBVIOUSLY DIFFERENT”
The battle concerns a tweet that Musk sent to his more than 24 million Twitter followers: “Tesla made 0 cars in 2011, but will make around 500k in 2019,” meaning 500,000 vehicles.
Four hours later, Musk corrected himself, saying annualized production would be “probably around” 500,000 by year end, with full-year deliveries totaling about 400,000.
The SEC called the earlier tweet “obviously different” from Tesla’s Jan. 30 outlook, when it targeted annualized Model 3 production exceeding 500,000 as soon as the fourth quarter, and projected 360,000 to 400,000 vehicle deliveries this year.
Musk’s lawyers countered that the earlier tweet merely restated a forecast he had given on Jan. 30, when he said Model 3 production could total 350,000 to 500,000 vehicles.
They have also said the SEC had conceded during settlement talks that Musk did not need pre-approval for all tweets about his Palo Alto, California-based company.
Tesla, which built its reputation on luxury cars, has faced several production challenges with its Model 3 sedan, which it is counting on to reach the mass market, recently offering a version starting at $35,000.
On Wednesday night, Tesla repeated its Jan. 30 vehicle delivery forecast, but said first-quarter deliveries had fallen 31 percent from the prior three months to about 63,000.
It is rare for the SEC to seek a contempt finding.
MUSK HAS CALLED SEC ‘BROKEN’
The “funding secured” tweet had sent Tesla’s share price up as much as 13.3 percent. Musk’s privatization plan was at best in an early stage, however, and financing was not in place.
The legal battle has not stopped Musk from being an outspoken critic of the SEC.
Since it began last September, he has labeled the SEC the “Shortseller Enrichment Commission,” recalling his attacks on investors who sell Tesla stock short, and told CBS’s “60 Minutes” he did not have respect for the SEC.
And in the early morning of Feb. 26, after the SEC filed its contempt motion, Musk tweeted: “Something is broken with SEC oversight.”
Reporting by Brendan Pierson and Jonathan Stempel in New York; Editing by Lisa Shumaker