As part of a September settlement, Musk promised to get sign-off from Tesla lawyers for any tweets that “contain, or reasonably could contain” material information—legal jargon for information that’s significant for people trading Tesla’s stock.
Musk disagrees. He argues that he was merely repeating Tesla’s earlier production estimates. And he insists he was entitled to use his own judgment to determine the information was not material—and therefore didn’t require pre-approval by Tesla’s lawyers.
Tesla is “best positioned to interpret its own policy”
Musk re-iterated these claims in his latest filing. The settlement required Musk to follow a set of Tesla-developed guidelines, and Musk notes that Tesla’s lawyers have stated that he hasn’t broken those guidelines.
“Tesla—which is best positioned to interpret its own policy—has affirmed to the SEC that Musk complied with the policy,” Musk’s lawyers wrote in the Friday filing. “This is meaningful evidence that Musk has satisfied his obligations. The court can discharge its order to show cause on these grounds alone.”
It’s worth noting here that Tesla’s general counsel, Dane Butswinkas, abruptly quit on February 20, 2019—one day after Musk’s February 19 tweet and the same day the SEC sent Tesla a letter seeking more information about the tweet. Butswinkas had only been on the job for about two months. Under Tesla’s policy, Butswinkas was one of the lawyers who was supposed to review material tweets from Musk before they were posted, but Musk never submitted any tweets for his approval.
On March 11, an external Tesla attorney from the law firm of WilmerHale sent the SEC a letter stating that—in Tesla’s view—Musk’s tweets were not material and therefore Musk has complied with Tesla’s tweet approval policy.
“Musk has not tweeted material information”
In its most recent filing, the SEC faulted Musk for failing to get any of his tweets pre-approved since that policy took effect in December. These included tweets about “vehicle tax credits and pricing,” “plans for expansion of charging stations internationally,” “construction and production plans for a new Shanghai factory,” and “whether Tesla plans to phase out its Model S and Model X vehicles in the future.” The SEC views all of these topics as material to Tesla shareholders.
Again, Musk disagrees.
“The SEC shows, through its selection of ten tweets, that no matter how innocuous, how well known, or how removed from the subjects mentioned in the Policy, because the tweet concerns Tesla, the SEC believes Musk must have them pre-approved,” Musk writes. “These tweets, which include statements denying untrue rumors and repeating well-known safety information, prove Musk’s point. Since the Order was entered, Musk has not tweeted material information regarding Tesla”
Musk argues that the SEC’s broader interpretation is “inconsistent with the plain language” of Musk’s settlement agreement with the SEC. He includes red-line drafts Musk’s lawyers sent to the SEC during negotiations over the settlement. According to Musk, the SEC initially sought to have all Tesla-related tweets pre-approved, but Musk insisted that only tweets that were material—or likely to be so—should be subject to pre-approval. In Musk’s view, the SEC is trying to re-write the agreement and force Musk to get all Tesla-related tweets pre-approved.