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SEC files strongly worded support for its contempt charges against Tesla's Musk

The U.S. SEC on March 18 submitted a strongly worded rebuttal to Tesla Inc. CEO Elon Musk's claim that his Feb. 19 tweet claiming that the company will make 500,000 cars in 2019 did not violate their 2018 settlement agreement mandating him to seek pre-approval for certain tweets.

The securities regulator told a federal judge that it was "stunning" that the executive "never once" sought pre-approval for his tweets regarding the company's business and reiterated its request to a federal judge to hold the executive in contempt and "impose an appropriate remedy," according to documents filed in U.S. District Court for the Southern District of New York.

Musk lawyers in a March 18 filing dubbed SEC's claims as "unsupported assertions" and sought until March 22 to respond.

On Feb. 25, the U.S. SEC asked a federal court to hold Musk accountable for the Feb. 19 tweet as it contained "demonstrably material and inaccurate" information about Tesla's 2019 vehicle production and violated a settlement agreement between the regulator and the executive. As per the settlement agreement, Musk must seek pre-approval before publishing tweets that contain or reasonably could contain information material to Tesla and its shareholders.

On March 11, Musk's lawyers filed a counterclaim, arguing that the tweet "did not cause any notable move in Tesla's stock price" and it does not violate the agreement.

The SEC said Musk's Feb. 19 tweet was in "blatant violation" of the court's order and Musk’s contention that the potential size of a car company's production for the year could not reasonably be material "borders on the ridiculous."

"Musk's unchecked and misleading tweets about Tesla are what precipitated the SEC's charges, and the preapproval requirement was designed to protect against reckless conduct by Musk going forward," the regulator said in its complaint.

In response to Musk's claim that his First Amendment rights were being violated, the regulator argued that Musk "voluntarily waived" his freedom of speech when he agreed to gain preapproval of written communications "that contain, or reasonably could contain, information material to the company or its shareholders," as part of their settlement in 2018.

"Submitting his written statements for preapproval does not, as Musk baldly asserts, mean that he is prohibited from speaking," the SEC said.

Musk stepped down as Tesla's chairman under the terms of the company's settlement with the regulator. The SEC sued Musk in September 2018 after the executive posted a series of tweets announcing that he will take the company private in a $420-per-share transaction.

Shares of the electric carmaker closed down 2.16% to $269.49 following the SEC's counterclaim.

Tesla did not immediately respond to S&P Global Market Intelligence's request for comment.