Musk thinks SEC should chill on sanctions for tweets

If Elon Musk's company doesn't have a problem with his recent tweets, attorneys for the Tesla Inc. CEO say, then the U.S. Securities and Exchange Commission shouldn't either.

Musk called the SEC's move to have him held in contempt and sanctioned for a Feb. 19 tweet about Tesla's manufacturing capabilities "wrong at virtually every level" in a reply filed in the Southern District of New York Friday.

The SEC made its sanction request a few days after Musk's tweet, in which he claimed Tesla was on track to produce 500,000 cars in 2019, arguing it violated a court ordered settlement requiring him to seek pre-approval from his outside counsel before making material statements on Tesla's business.

Musk argued in response the statement was immaterial and innocuous and the SEC's request "relies on a radical reinterpretation" of the court order.

"Not only is the SEC's categorical approach inconsistent with the plain language of the order, it is also belied by the settlement negotiations between the parties," wrote Musk attorney John C. Hueston, a founding partner at Hueston Hennigan LLP, in Friday's reply to the contempt charges.

According to Hueston, that sort of requirement had been a contentious point in settlement negotiations between the SEC, Tesla, and Musk. The SEC initially sought approval for all of Musk's statements related to the company in any format, Hueston said, but over the course of negotiations it agreed to language narrowing the requirement only for "written communications that contain or reasonably could contain information material to the company."

"Musk's counsel explained his ability to engage with customers about Tesla products is critical to Tesla's success, and that Musk not agree to broad preapproval of Tesla-related statements," Hueston wrote.

The order required Musk to comply with all mandatory procedures implemented by Tesla regarding oversight of his public statements relating to the company, and in his reply, Musk claims he's diligently complied with the company's terms. Tesla, "which is best positioned to interpret its own policy," has affirmed to the SEC that Musk has complied with the company's policies, his attorneys argue.

Musk claims his other statements on Tesla's manufacturing capability, which the SEC claims offered inconsistent and contradictory figures, were similarly immaterial. But inconsistencies like that are generally not a good sign when dealing with the SEC, said JR Lanis, an experienced securities attorney and chair of Polsinelli PC's West Coast Corporate & Securities practice not involved in the matter.

"Anytime an SEC registered company makes a public statement, it is problematic to revise what was said after the fact if it's untrue or inaccurate," Lanis said.

When making an SEC disclosure, Lanis said, the standard typically comes down to materiality. While attorneys can argue against the materiality of a disclosure, Lanis said they'll have to convince a judge over any arguments of the SEC.

A SEC spokesperson did not immediately respond to a request for comment late Friday.

Musk's SEC woes began in August when he tweeted that Tesla's stock prices were "locked" at $420 per share, which he later claimed was a marijuana reference intended to impress his girlfriend. The SEC didn't appreciate the apparent joke as it sought initially to have Musk removed from his position as Tesla CEO before agreeing to the current settlement's terms.

A hearing on the SEC's contempt request, assigned to U.S. District Judge Alison J. Nathan, has not been scheduled.