NEW YORK (AFP) - A federal judge on Thursday gave Tesla chief executive Elon Musk and US securities regulators two weeks to resolve their differences over Musk’s prolific social media use.
The Securities and Exchange Commission had argued Musk should be held in contempt of court for allegedly violating an earlier settlement on tweeting potentially market-sensitive information without having it reviewed by counsel.
“I am requiring you to meet and confer for at least an hour,” US District Judge Alison Nathan said to conclude a 90-minute oral argument.
Nathan said the parties should prepare a joint letter, suggesting she could rule on the case after that time if the talks fail.
The judge appeared sympathetic at times with some of the government’s arguments, but she also expressed significant reservations about finding Musk in contempt, which she said was “serious business” and a ruling that placed a “significant burden” of proof on the government.
Musk, who could be seen nodding or shaking his head at times, told reporters just after the argument he was “very happy” with the hearing and “very impressed”
Later, outside the courthouse, Musk told CNBC he would “most likely” be able to resolve his differences with the SEC.
Thursday’s hearing was the latest incident in Musk’s running dispute with the SEC after an October agreement required Musk to step down as chairman and pay US$ 20 million to settle charges he defrauded investors with false claims on Twitter in August about a possible go-private transaction that was quickly aborted.
The settlement, which allowed Musk to remain as CEO, required him to obtain pre-approval from Tesla counsel before making written communications “that contain, or reasonably could contain, information material to Tesla or its stockholders.”
The SEC cracked down after Musk tweeted on February 19 that Tesla would make 500,000 cars in 2019 -- up from the 400,000 that the company had estimated until then, an apparent increase on a benchmark tied to profitability.
Musk corrected himself four hours later, saying that Tesla would indeed produce about 400,000 cars this year.
SEC attorney Cheryl Crumpton said the errant February 19 tweet and the fact that Musk had not submitted any tweets for pre-publishing review showed he had made no serious effort to follow the requirement, which she called the “heart” of the settlement.
Crumpton said possible remedies could include monthly reports from Tesla and Musk documenting steps to implement the requirement. She said fines could be escalated if there are more problem tweets.
Crumpton cited a comment from Musk on Twitter that the prior $20 million SEC fine had been “worth it,” adding that the court should impose a “meaningful fine to make it not ‘worth it.’”
John Hueston, an attorney representing Musk, argued that Musk’s February 19 tweet was not material, or consequential, to investors, and that the language in the settlement was ambiguous on what types of information needed to be reviewed prior to publication.
He also argued that the SEC had been hasty in seeking a contempt ruling without first trying to confer with Musk.
“If Mr. Musk made some kind of mistake, that is not a reason for contempt,” Hueston said.
When the SEC initiated the latest action against Musk, it generated talk that he could be removed as CEO. While some analysts think a contempt ruling could a prelude to that outcome down the road, the SEC has not discussed ousting Musk for flouting the agreement and Crumpton made no mention of such a punishment on Thursday.
The agency’s remedies are constrained because of Musk’s centrality to Tesla and a reluctance to harm Tesla employees and investors, said Columbia Law School professor Joshua Mitts.
“Normally we say if there are problems with corporate governance, just replace the CEO. That just doesn’t work with Elon Musk,” Mitts told AFP.