The Securities and Exchange Commission’s allegation that Tesla CEO Elon Musk is in contempt of the federal court that approved a settlement between Musk and the agency is highly unusual, former SEC senior counsel Thomas Gorman told Business Insider.
Being in contempt of court means either misbehaving in a courtroom or deliberately disobeying a court order (the SEC is accusing Musk of the latter). The SEC rarely brings contempt proceedings, Gorman said.
“There just aren’t very many of these cases around.”
It’s particularly rare for the SEC to bring contempt proceedings against a corporate executive, rather than the operator of an illegal enterprise like a Ponzi scheme, Gorman said.
The SEC sued Musk in September, alleging that Musk made “false and misleading statements” in August about the possibility of taking the automaker private. Musk and the agency reached a settlement in September, under which Musk didn’t admit or deny the allegations in the agency’s lawsuit but stepped down as the chairman of Tesla’s board of directors for three years and paid a $20 million fine. The settlement also required Tesla to monitor Musk’s communications, including on platforms like Twitter.
But in the months after the settlement, Musk took aim at the SEC, saying in an interview with “60 Minutes” that he didn’t respect the agency. And, on February 19, Musk tweeted a projection about Tesla’s 2019 vehicle production that exceeded what the automaker had said in its most recent earnings letter.
Musk corrected the tweet, but the SEC said in a court filing on Monday that Musk had violated the terms of his settlement with the agency by not seeking or receiving approval from Tesla before publishing his tweet about vehicle production. The agency asked a judge to hold Musk in contempt of the federal court that approved the settlement.
But proving that Musk violated the terms of the settlement will be difficult for the SEC, which faces a burden of proof just below what is necessary for a criminal case, Gorman said.
“The SEC has to prove they’re right by clear and convincing evidence. It’s not enough to have a preponderance.”
The most likely outcome is that Musk is sanctioned, fined, and given a stern warning about the consequences of disobeying his settlement with the SEC, said Peter Haveles, a partner at Pepper Hamilton.
“It’s going to be the equivalent of hitting him across the head with a two by four in order to get his attention.”
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