Musk to face another U.S contempt claim

Elon Musk is facing a fresh round of regulatory trouble for tweets about Tesla Inc. The U.S. Securities and Exchange Commission (SEC) has asked a judge on Monday, February 25, to hold Musk in contempt for violating last year’s settlement with the agency. Musk is a technology...

Elon Musk is facing a fresh round of regulatory trouble for tweets about Tesla Inc. The U.S. Securities and Exchange Commission (SEC) has asked a judge on Monday, February 25, to hold Musk in contempt for violating last year’s settlement with the agency.


Musk is a technology entrepreneur who is the founder, CEO, and lead designer of SpaceX; co-founder, CEO, and product architect of Tesla, Inc.; co-founder and CEO of Neuralink; founder of The Boring Company; and co-founder of PayPal. In December 2016, he was ranked 21st on the Forbes list of The World's Most Powerful People.

This isn’t the first time that Musk has faced litigation with the SEC. He was sued last year for tweets about consider making Tesla Inc. private. Tesla received a subpoena from the SEC over Musk’s tweet, showing intensifying regulatory scrutiny for his communications. The SEC then sued Musk over the tweet, saying he misled investors by claiming falsely that he had lined up funding for the take-private transaction.

Musk settled the dispute with Tesla and the SEC by agreeing to pay $20 million as a fine and also stepped down as chairman of Tesla Inc. The settlement also required Tesla to appoint two new independent directors and implement controls to oversee the communications of Musk, who can stay on as CEO.


The SEC on Monday requested a judge to hold Musk in contempt for violating a settlement that required him to get Tesla approval for social media posts and other writings that could be material to investors. The SEC alleged that Musk “once again published inaccurate and material information about Tesla to his 24 million Twitter followers, including members of the press, and made this inaccurate information available to anyone with Internet access,” according to court papers filed in Manhattan federal court.

SEC’s move set the Tesla stocks back by 3% in pre-trading business, and also put Musk in risk less than five months after he settled claims that he misled the public with tweets about taking the electric-car maker private. “Musk could face a variety of penalties, with the stiffest being that he’ll be barred from running Tesla or any other public company for a period of time”, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. 

In a tweet after the filing, Musk said that the SEC overlooked the earnings transcript that he had posted on January 30, claiming the manufacture of 500,000 cars by the end of the year. U.S. District Judge Alison Nathan, who is handling the case, hasn’t scheduled a hearing to weigh the contempt request or set a date for Musk or Tesla to respond to the filing.

Losing Musk will have a negative effect on Tesla who not only relies on him for technological leadership but also for his bold, anti-establishment image. His personality has also had its pitfalls, with his mercurial actions sending the company’s stock into a tailspin. Tesla’s sales have begun to fall considerably since the beginning of the year. This is due to the reduction in federal tax credit by half, causing a 75% drop in sales. They were only able to sell 6500 cars in January. Tesla has declined to comment on the estimate, but customer traffic appears to have dropped off significantly at its showrooms.

Customer complaints regarding quality and customer service have increased manifold. Many customers have had to wait for months to get their cars repaired due to the shortage in replacement parts. Many customers are still waiting on their delivery of the more affordable Model 3 as compared to the Model X utility vehicle and the Model S luxury sedan.


Our assessment is that the suit filed against Musk could result in him stepping down from the company. The departure of more than 40 senior executives in Tesla over the last two years has also caused some discomfort to the shareholders. The loss of Musk could cause Tesla’s stock to further move downwards, jeopardising the company’s future.

Read more: