MANHATTAN (CN) — Unexpectedly arriving to federal court to face contempt allegations Thursday, tech billionaire Elon Musk had good reason to smile for the cameras after proceedings let out.
What could have ended with embarrassing sanctions closed instead on a cliffhanger.
“My call to action is for everyone to take a deep breath, put your reasonableness pants on and work this out,” U.S. District Judge Alison Nathan said, giving the parties two weeks to return to the negotiating table.
The Securities and Exchange Commission had been lobbying for a heavy fine to supplement the $20 million deal it struck last year, resolving charges that Musk had tweeted misleading information about the price of Tesla shares.
While the deal put Musk’s social media habits on a leash, Judge Nathan voiced confusion today about its terms.
“What does it mean?” Nathan pressed the SEC’s attorney.
The settlement required Musk to obtain “preapproval of any such written communications that contain, or reasonably could contain, information material to the company or its shareholders.”
Musk put those terms to the test on Feb. 19, however, when he tweeted to his 24 million followers: “Tesla made 0 cars in 2011 but will make around 500k in 2019.”
Some four hours later, Musk backtracked from the estimate.
“Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week,” Musk tweeted. “Deliveries for year still estimated to be about 400k.”
SEC attorney Cheryl Crumpton argued in court this afternoon that the post clearly violated the settlement.
“We are here today because Elon Musk has disregarded the preapproval requirements of this court’s order,” she said.
In a court brief, Musk’s attorneys disclosed that he never submitted a tweet for preapproval, and that he has a representative reviewing his tweets in real time upon publication.
“That’s not what the SEC negotiated in its settlement,” she noted.
But Judge Nathan was not so easily swayed. ”You’re taking that out of context, aren’t you?” she interjected.
She also had stern words for Musk, however telling the tech tycoon that it did not matter whether he is a “small potato or a big fish.”
“That’s the rule of law,” she added.
Musk’s attorney John Charles Hueston, from the firm Hueston Hennigan LLP, questioned whether his client could be sanctioned at all for breaching such cloudy verbiage.
“Not for contempt given the murk of the policy in place,” Hueston said.
Nathan appeared uncomfortable with allowing that standard to prevail.
“The court needs to give clear and unambiguous orders,” she said.
If the terms are unclear, she suggested, the consent judgment may need to be vacated or modified.
“In the case of ambiguity, no contempt can be brought,” she noted. “But if you prevail, something has to change.”
Musk has made no secret for his disdain for the SEC.
In an emotional interview with “60 Minutes” last year, Musk proclaimed: “I do not respect the SEC. I do not respect them.”
Shortly after signing the original settlement, Musk tweeted: “Worth it.”
Crumpton quoted this language to ask the judge to impose a substantial financial penalty.
“We ask the court to make him pay a meaningful fine to make it not ‘worth it,’” Crumpton said.
Nathan today noted the assertion by Musk’s attorneys that their client has cut down on his tweeting about Tesla since last year’s settlement.
Tesla wrote a letter to the court arguing that Musk’s tweet did not contain material information, and an expert appointed by his attorney found that it did not move stock prices.
“The market gave the judgment: immaterial,” Hueston said.
Nathan appeared reluctant to have Tesla’s judgment over Musk’s compliance with the judgment substitute for her own.
“If you prevail today, your argument is that I have no future role?” the judge asked.
The question hung heavy over the proceedings because Tesla has stood by their CEO and co-founder.
“Tesla has, for whatever reason, thrown its lot with Mr. Musk,” Crumpton put it, calling that alliance “troubling.”
Perhaps chastened by the fallout of his TV bluster, Musk sat stone-faced beside his attorney for most of the proceedings.
During Crumpton’s arguments, however, the fiery billionaire could not restrain reactions to his SEC pursuers.
Musk arched his brow and quizzically frowned as Crumpton spoke, and nodded heavily at his own attorney rattling off statistics about Tesla’s anticipated production.
At the end of the hearing, Musk gave the proceedings high marks, telling reporters that he was “very happy” with how they went and “very impressed with Judge Nathan’s analysis.”