Elon Musk shoots back at US regulators, accusing them of 'retaliation and censorship'

Telegraph Reporters
Elon Musk, co-founder and chief executive officer of Tesla Motors Inc., speaks during an interview at the company's assembly plant in Fremont, California, U.S., on Wednesday, July 10, 2013.

Tesla's chief executive Elon Musk shot back against US financial regulators on Monday, arguing that his recent tweet about his company's production numbers did not violate a previous fraud settlement and that he cannot be held in contempt.

Lawyers for Mr Musk said that his "single, immaterial" tweet to more than 24 million Twitter followers, claiming that Tesla would produce around 500,000 electric cars in 2019, complied with the communications policy his company has been forced to adopt. 

The US Securities and Exchange Commission (SEC) had asked a court in New York City to hold Musk in contempt, saying his tweet in February violated a fraud settlement from September which barred him from sharing material information about Tesla on social media without the company's pre-approval.

Bur Mr Musk's lawyers argued in a court filing that the SEC was exceeding its power in attempting to hold him in contempt, saying its action “smacks of retaliation and censorship”.

"This contempt action, following Musk's sincerely-held criticism of the SEC on 60 Minutes [a US TV show], also reflects concerning and unprecedented overreach on the part of the SEC," the filing said.

In December, Musk said in an interview with the US news programme 60 Minutes that: "I do not have respect for the SEC."

The settlement between Musk, Tesla and the SEC resolved an SEC lawsuit over claims Mr Musk made on Twitter in August that he had "funding secured" to take Tesla private at $420 per share. The SEC called those tweets "false and misleading", and a deal never materialized.

As part of that settlement, Musk stepped down as the company's chairman and he and Tesla agreed to pay $20m each (£15m) in fines.

The renewed public battle between Tesla's chief executive and the top US securities regulator adds pressure on Mr Musk, the public face of Tesla, who is struggling to make the company profitable after cutting the price of its Model 3 sedan to $35,000.

Tesla has backed off a plan to close all its US stores and said it will instead raise prices of its higher-end vehicles by about 3 percent on average.

In the filing, Mr Musk's lawyers said his tweet was a "proud and optimistic restatement of publicly disclosed information."

Mr Musk corrected his tweet four hours later to say that the "annualized production rate" at year-end 2019 would probably be about 500,000, with deliveries expected to be about 400,000.

Moreover, Mr Musk has exhibited self-censorship in dramatically reducing the volume of tweets since the settlement, they wrote, adding that the SEC's request, if granted, would raise free speech issues.

"This self-censorship is reflective of his commitment to adhering to the Order and avoiding unnecessary disputes with the SEC," they wrote in the filing.

Mr Musk called the regulator the "Shortseller Enrichment Commission" on Twitter after the settlement, and tweeted that "something is broken with SEC oversight" just one day after the agency started pursuing the contempt order.

Legal experts have said the SEC could now pursue multiple avenues, including a higher fine, imposing further restrictions on Mr Musk's activities or removing him from Tesla's board or helm.

Tesla published a new communications policy in December for senior executives as part of the settlement. It called for Tesla's general counsel and a newly designated in-house securities law attorney to pre-approve any written statements about Tesla that could be material.

A disclosure controls committee, made up of board members Brad Buss, Antonio Gracias and James Murdoch, was tasked with overseeing compliance with the new policy.