The Securities and Exchange Commission has investigated Elon Musk's tweets before. And they're doing it again.
And, like before, it comes down to the CEO of Tesla allegedly providing inaccurate material on Twitter about the company's performance. Specifically, it was the following two tweets about unit production.
Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week. Deliveries for year still estimated to be about 400k.-- Elon Musk (@elonmusk) February 20, 2019
The SEC and Tesla previously had worked out a deal over the controversy that blew up when Musk claimed on Twitter he'd take the company private and had funding secured. The stock price went up and there was no deal to go private.
At the time, Musk had to step down as chairman of Tesla for at least three years. Both he and Tesla had to pay fines of $20 million each. The company had to add two new independent directors to the board and create controls to review Musk's communications.
The deal let Musk off relatively easy, given how serious regulations and law considers allegations of manipulating public markets. Even then, Musk tried to taunt the SEC in yet another tweet.
Now the SEC has asked a judge to hold Musk in contempt. Musk fired back, claiming that his tweets were within what was discussed on the January earnings call. But the call specifically talked about coming close to reaching a 10,000 car-per-week production rate by the end of 2019, not actual shipping of 500,000 cars.
A court could fine him $1,000 a day from the day a court signed off on the previous agreement to when a court said he was in compliance. The bigger issue is that the SEC could remove Musk as CEO or even ban him from acting as an officer of a company.
It's almost unthinkable that any other CEO could have done what he has and been left in place by a company's board.
Musk may be the largest single shareholder of Tesla and even have strong influence over the board, but behavior like this won't--can't--be tolerated forever. Eventually the entire system and all who profit under it, including Tesla's directors, will have to react to show that investor trust will be respected. Look at Travis Kalanick's departure from Uber. That was without the pressure of an SEC action.
Why does Musk continue on this path? He's far from stupid, which suggests three possible answers:
- Musk thinks that the system will bend to his will and let him do as he likes. CEOs as a rule have need a strong ego to assume they can make a big organization better. Maybe Musk thinks there is no real danger. In that case, someone close had better set him straight.
- Perhaps Musk's response is purely emotional. He feels compelled to prove himself to be the top dog, no matter what the situation. Again, someone had better take him aside and set him straight, if that's even possible.
- Or maybe Musk is burnt out and really wants out while saving face so he can say that he didn't quit: If only people had let him, he might have overcome all the problems. Musk has talked publicly about the pressures he's felt and yet he keeps getting involved in other ventures.
There are certain skills and frame of mind needed to be a good entrepreneur. Many who are so suited don't have the psychology to be the CEO of a large business. It might be best for all if Musk would walk away so he could still advise the company while spending time on his other ideas. That's something many entrepreneurs might consider if their businesses become more successful than they expected.
For Musk, the question is whether he can be helped to see the damage he's causing to so many.