Elon Musk and Wall Street regulator reach agreement over Tesla tweets

Word of a settlement came just days after Tesla disclosed a heavy loss in the first quarter of 2019

Elon Musk exits after attending a SEC hearing at the Manhattan Federal Courthouse in New York. There was no mention in the court papers of any new fines or additional controls on Mr Musk, which had been a possibility. ReutersShow less

Elon Musk has struck a deal over his Twitter use with the US Securities and Exchange Commission, averting a decision by a federal judge on whether the billionaire should be held in contempt of court.

The terms of the agreement between Tesla's co-founder and chief executive and the top Wall Street regulator include gaining pre-approval from a Tesla-appointed lawyer before Mr Musk makes certain public statements, according to a court document. His use of Twitter or other social media, and claims made in press releases or on earnings calls – or any other public platforms – are to be vetted by "an experienced securities lawyer employed by the company" if he is to make statements about acquisitions, mergers, new products and production numbers, the filing said.

The SEC said in the filing that the agreement "is fair, reasonable, and in the interest of the parties and investors because the proposed revisions will provide additional clarity regarding the written communications for which the defendant is required to obtain pre-approval".

If approved by US District Judge Alison Nathan, the settlement would bring to a close Mr Musk's dispute with the SEC. It follows an October agreement that required him to step down as chairman and pay $20 million (Dh73m) to settle charges that he defrauded investors with false claims on Twitter in August about a possible bid to take the company private, which was quickly abandoned.

The SEC cracked down again after Mr Musk tweeted on February 19 that Tesla would make 500,000 cars in 2019 – up from the 400,000 that the company had estimated until then, an apparent increase on a benchmark tied to profitability. Mr Musk corrected himself four hours later, saying that Tesla would indeed produce about 400,000 cars this year, but the damage – as far as the SEC was concerned – had already been done.

The regulator argued Mr Musk should be held in contempt of court for allegedly violating that earlier settlement on tweeting potentially market-sensitive information without having it reviewed by counsel.

At a hearing earlier this month, Judge Nathan ordered both sides to try to work out their differences, suggesting she could rule on the case if the talks failed.

The judge appeared sympathetic at times with some of the government's arguments, but she also expressed significant reservations about finding Mr Musk in contempt, which she said was "serious business" and a ruling that placed a "significant burden" of proof on the government.

There was no mention in the court papers of any new fines or additional controls on Mr Musk, which had been a possibility. A final version of the settlement for court approval is due by Tuesday.

“This is a clear win for Elon Musk,” Dan Ives, an analyst at Wedbush Securities in New York, told Bloomberg. “This removes an overhang on the stock because many feared this would not end well for Tesla. The bark ended up being worse than the bite. There’s no structural changes.”

Tesla shares climbed as much as 1.6 per cent in after-hours trading on Friday. In regular trading before the proposed settlement being made public, the stock had its worst week since Mr Musk’s plans to take the car maker private fell apart in August.

Word of a settlement came just days after Tesla disclosed a heavy loss in the first quarter as car deliveries sputtered overseas and a US tax credit that made its prices more attractive was reduced.

The California company reported a loss of $702m in the first three months of this year after two consecutive quarters of profit.

Tesla produced about 63,000 Model 3 vehicles in the period, an increase of 3 per cent from the same quarter a year earlier but fewer than had been anticipated. The company attributed its disappointing financial results to Model 3 shipping delays, particularly in Europe and China.

Overall company revenue in the period rose 33 per cent to $4.5 billion in a year-over-year comparison, but fell far short of Wall Street forecasts.

The company is expected to remain on course to deliver between 360,000 and 400,000 vehicles in total this year, topping 2018 numbers by at least 45 per cent.

But Mr Musk’s legal troubles over social media do not end with the SEC. In a separate case, a federal judge in Los Angeles on Friday said he cannot escape a lawsuit by a British cave rescuer who took offence over name-calling by Mr Musk after he ridiculed the entrepreneur's mini-submarine.