SEC struggling to rein in Elon Musk’s tweets, letters reveal

The Securities and Exchange Commission is having a hard time reining in Elon Musk’s social media use, according to a new report from The Wall Street Journal.

The regulator sent Tesla three sternly worded letters between August 2019 and June 2020, asking Tesla’s attorney’s to enforce a 2018 settlement that demanded greater oversight of Musk’s social media posts. “Tesla has abdicated the duties required of it by the court’s order,” said the SEC in a letter from May of last year.

The three letters, including the SEC’s records of its correspondence with Tesla’s attorneys, were obtained by the Journal through a Freedom of Information Act request. They show a regulator struggling to enforce a settlement that, from the outset, seemed challenging to implement.

The brouhaha began when Musk sent his infamous “funding secured” tweet. In August 2018, Musk announced that he would be taking Tesla private at $420 per share. That sent the company’s stock soaring, only to see it plummet when funding turned out to not, in fact, be secured. Investors complained en masse to the SEC about the stunt. The regulator investigated the matter and first attempted to settle things with Musk and Tesla. Musk balked, so the SEC sued.

In court, Musk risked losing the ability to be an officer or board member, not just at Tesla but at any publicly listed company in the US. So rather than go to court, where the SEC was the heavy favorite, Musk and Tesla settled, with both defendants paying $20 million in penalties. Musk also stepped down as chairman of Tesla’s board.

But that wasn’t all. The SEC also stipulated another condition in the settlement: Tesla would have to implement “controls and procedures to oversee Musk’s communications.” Musk would have to seek approval for tweets that “contain or could contain” material information—basically anything that could affect Tesla’s stock price.

Refining the settlement

From the beginning, it was clear that Musk had his own interpretation of the settlement terms.

Less than five months after the settlement, Musk tweeted that Tesla “will make around 500k in 2019.” He later clarified that he meant an annualized production rate of 500,000 cars. He didn’t clear either statement with Tesla lawyers, so the SEC took him to court, asking that he be held in contempt.