By Dave Michaels and Rebecca Elliott
WASHINGTON -- Securities regulators told Tesla Inc. last year
that Chief Executive Elon Musk's use of Twitter had twice violated
a court-ordered policy requiring his tweets to be preapproved by
company lawyers, according to records obtained by The Wall Street
Tesla and the Securities and Exchange Commission settled an
enforcement action in 2018 alleging that Mr. Musk had committed
fraud by tweeting about a potential buyout of his company. Mr. Musk
paid $20 million to settle that case -- Tesla also paid $20 million
-- and agreed to have his public statements on social media
overseen by Tesla lawyers.
In correspondence sent to Tesla in 2019 and 2020, the SEC said
tweets Mr. Musk wrote about Tesla's solar roof production volumes
and its stock price hadn't undergone the required preapproval by
Tesla's lawyers. The communications, which haven't been previously
reported, spotlight the running tension between the nation's top
corporate regulator and Mr. Musk, who publicly mocked the SEC even
after settling fraud claims with the agency.
The SEC told Tesla in May 2020 that the company had failed "to
enforce these procedures and controls despite repeated violations
by Mr. Musk." The letter, signed by Steven Buchholz, a senior SEC
official in its San Francisco office, added: "Tesla has abdicated
the duties required of it by the court's order."
Tesla, Mr. Musk, and the SEC didn't respond to requests for
Mr. Musk's skirmish with the SEC is part of a pattern by him and
Tesla of sidestepping rules or averting enforcement attempts, the
Journal reported in April. Tesla has also clashed with the National
Transportation Safety Board and state Occupational Safety and
Health Administration officials in Nevada. Another company run by
Mr. Musk, SpaceX, has also had a sometimes contentious relationship
with the Federal Aviation Administration.
The preapproval requirement was an unusual condition of the SEC
enforcement action that the regulators touted as a way to improve
Tesla's corporate governance in the wake of the 2018 investigation.
The deal also called for Mr. Musk to relinquish his chairman's role
and for Tesla to appoint two independent directors. Mr. Musk and
Tesla resolved the SEC investigation without admitting or denying
From the start, the social-media policy was difficult for the
SEC to enforce. The SEC accused Mr. Musk of violating the rules in
February 2019 and asked a Manhattan federal court to consider
holding him in contempt. The judge signaled she wanted the two
sides to settle the dispute and they agreed to modify the policy by
clarifying which topics required pre-approval. Those were
identified as including communications about production figures,
new business lines and the company's financial condition.
Within months, the SEC was writing Tesla again, questioning a
tweet Mr. Musk wrote on July 29, 2019, that stated: "Spooling up
production line rapidly. Hoping to manufacture 1000 solar
roofs/week by end of this year."
That tweet fell under a requirement to vet any public messages
that addressed "production numbers or sales or delivery numbers,"
the SEC wrote in an August 2019 letter to Tesla. Tesla told the
agency that Mr. Musk hadn't submitted the tweet for review and that
a committee had later determined it didn't require authorization
because it was "wholly aspirational," according to the SEC's
account of its correspondence with the company.
Less than a year later, on May 1, 2020, Tesla's shares fell
after Mr. Musk tweeted, "Tesla's stock price is too high imo." That
again prompted a letter from Mr. Buchholz.
Tesla told the agency its lawyers hadn't reviewed that tweet,
which the company described as "personal opinion" that didn't
require authorization, according to the SEC's correspondence. When
the SEC sought records related to the tweet, Tesla said there were
none, the agency wrote in a May 8, 2020, letter to Tesla. Mr.
Musk's tweet addressed the company's financial condition, a topic
subject to the policy, the SEC wrote.
"In the face of Mr. Musk's repeated refusals to submit his
covered written communications on Twitter to Tesla for
pre-approval, we are very concerned by Tesla's repeated
determinations that there have been no policy violations because of
purported carve-outs," the SEC wrote in that letter.
Mr. Musk, who has at times been sharply critical of regulators,
lashed out at the agency soon after, tweeting in July, "SEC, three
letter acronym, middle word is Elon's."
The SEC said in a June 2020 letter to Tesla's lawyers that it
hoped to resolve the disagreements without going to court. The
regulator wrote that Tesla and its lawyers "declined to engage in a
substantive dialogue regarding the May 1 tweet."
The feud appears to have ended in a stalemate without further
consequence to Tesla or Mr. Musk, the correspondence suggests.
Tesla's lawyers argued against the SEC's claims about the tweets,
and the SEC never went back to court to ask a judge to
The SEC ended a June 2020 letter with a request: "We urge the
company to reconsider its positions in this matter by acting to
implement and enforce disclosure controls and procedures...to
prevent further shareholder harm."
The disputes over Mr. Musk's tweets don't mean the policy was
wrongheaded, said Jill Fisch, a University of Pennsylvania law
professor. Corporations and CEOs are still working through how to
use social media, she said, and oversight from regulators can help
improve things. Leaders such as Mr. Musk, who exerts a strong pull
over markets, deserve special attention, she said.
"It's hard to draft a court order that allows for some
communication but also potentially constrains or monitors it," Ms.
Fisch said. "The first time out, it's going to be an imperfect
Write to Dave Michaels at email@example.com and Rebecca
Elliott at firstname.lastname@example.org
(END) Dow Jones Newswires
June 01, 2021 18:06 ET (22:06 GMT)
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