WSJ: SEC says Tesla didn’t do enough to monitor Musk’s Twitter account

Tesla Inc. (NASDAQ: TSLA) and Securities and Exchange Commission (SEC) have been at loggerheads over Tesla CEO Elon Musk’s tweets over the past two years, according to the Wall Street Journal (WSJ).

How did it all start?

Back in 2018, Musk had tweeted that he had secured funding to take Tesla private. The SEC soon started an investigation into Tesla and Musk after it determined that the tweet was in violation of its security rules. Tesla and Musk, each paid $20 million to settle the investigation and the company agreed to have its CEO’s social media comments screened by company lawyers before posting.

Musk had to relinquish the position of the Chairman of the Board as part of the settlement.

How has it been since then?

Even after the close of the investigation, Musk has mocked SEC publicly, like in his following tweet:

According to the WSJ story, the SEC has communicated in the past two years to Tesla how some of Musk’s tweets are in violation of the settlement and have not been approved by the company’s lawyers. 

In May 2020, SEC told Tesla that the company had failed “to enforce these procedures and controls despite repeated violations by Mr. Musk” while further adding, “Tesla has abdicated the duties required of it by the court’s order.”

In February 2019, a judge asked the two sides to settle on the topics that needed pre-approval by lawyers. These topics were decided to be communications about production figures, new business lines and the company’s financial condition.

SEC’s rule requiring pre-approval of Musk’s tweets has been difficult to enforce as the company lawyers put different contexts around the tweet. For example, on July 29, 2019, Musk tweeted: “Spooling up production line rapidly. Hoping to manufacture ~1000 solar roofs/week by end of this year.” That tweet was determined to be “wholly aspirational” by a Tesla committee even though it fell in the “production figures” category, after the SEC questioned the company.

What’s the current situation?

In June 2020,  SEC said the following in a letter to Tesla:

“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 SEC also noted in the letter that it hoped to resolve the disagreements without going to court.