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Tesla’s Musk should address SEC contempt bid as he calls agency ‘broken’

NEW YORK (Reuters) – A federal judge on Tuesday ordered Tesla Inc Chief Executive Elon Musk explained by March 11 why he should not be held in contempt for violating its fraud settlement with the U.S. Securities and Exchange Commission.

FILE PHOTO: Tesla CEO Elon Musk attends the Tesla Shanghai Gigafactory groundbreaking ceremony in Shanghai, China, January 7, 2019. REUTERS/Aly Song/File Photo

The order by U. S. District Judge Alison Nathan in Manhattan came hours after the billionaire criticised SEC supervision as “broken” in the wake of the regulator’s request on Monday night that he despised.

Lawyers for Tesla and Musk is not immediately respond to requests for comment. Tesla did not immediately respond to similar requests. The SEC declined to comment.

Analysts said that the renewal of the public battle between Musk and the top U.S. securities regulator will be an overhang on Tesla’s stock, which has lost about a quarter of its value since the peak in August.

“A boxing match with the SEC is the last thing investors wanted to see,” wrote Daniel Ives, an analyst at Wedbush Securities who has a “better than” rating on Tesla.

He called the latest incident “a wild card that could possibly bring a tornado of uncertainty back in the Tesla story until it is resolved.”

Tesla shares were up 0.8 percent at $301.13 around noon on Tuesday on the Nasdaq. They had fallen as much as 3.3 percent earlier.

SEC SAYS TWEETS ARE NOT VETTED

The SEC’s contempt motion followed Musk’s tweet are more than 24 million followers on Twitter on Feb. 19: “Tesla 0 cars in 2011, but will be around the 500k in 2019,” meaning 500.000 vehicles.

According to the SEC, Musk violated its October 2018 settlement agreement by sending that tweet without first seeking the approval of Tesla’s lawyers.

He also said that the outlook in contrast with the guidance that Tesla had given to Jan. 30 that it will supply about 400,000 vehicles in 2019.

The settlement resolved an SEC lawsuit over a Twitter message in which Musk said that he was “funding” his Palo Alto, Calif. – based company private at $420 per share.

Musk agreed to step down as Tesla’s chairman, and both he and Tesla agreed to pay $20 million in civil penalties.

Four hours after his Feb. 19 tweet, Musk corrected himself, saying: on a yearly basis of the production would probably be around 500,000 at the end of the year, with full year deliveries total of 400,000.

Bradley Bondi, a lawyer for Tesla, had told the SEC in February. 22 letter that Musk thought that the substance of his first tweet had been “appropriately controlled, pre-approved, and distributed to the public.”

POSSIBLE PUNISHMENT

It is not clear what punishment the SEC will look for it.

The regulator may seek a higher penalty, further restrictions on Musk activities, or the removal of him from Tesla’s board of directors.

Alternatively, it could try to prohibit the Musk of a public officer of the company, which would force him to step down as Tesla’s chief executive.

It is also not clear how Musk’s public criticism of the SEC would weigh on his fate.

The criticism continued on Tuesday, when Musk tweeted in the early morning: “Something is broken with SEC supervision.”

After his Monday night tweet, after the contempt motion was filed, the “SEC forgot to read Tesla earnings transcript, which clearly states 350k to 500k,” and added: “How embarrassing.”

Musk appeared to refer to his Jan. 30 response to analysts that Tesla would produce “perhaps on the order of 350,000 to 500,000 Model 3s, something like that this year.”

The criticism of the SEC is nothing new for Musk.

He called the controller in the Shortseller Enrichment of the Commission,” recalling his attacks against the hedge funds and other investors who sell Tesla stock short in the hope that it will fall.

And in a December interview with CBS “60 Minutes,” Musk said that he has no respect for the SEC. He also said that his tweets had not been assessed in advance, because the settlement.

Reporting by Jonathan Stempel in New York and Vibhuti Sharma and Medha Singh in Bengaluru; Editing by Chizu Nomiyama and Matthew Lewis

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