On the afternoon of Thursday, April 4th, press photographers and television cameras were stationed outside the Thurgood Marshall federal courthouse, in lower Manhattan, waiting for Elon Musk to arrive. Musk, the founder of Tesla, was scheduled to appear at a court hearing on the subject of whether his profligate tweeting had put him in violation of a court order that had been issued last October in response to his prior profligate tweeting. According to the order, Musk was supposed to have potentially sensitive tweets reviewed by a company lawyer before publishing them, to prevent the possibility that one of his messages could inappropriately disclose information that would cause Tesla’s stock price to move. The Securities and Exchange Commission was seeking to have Musk held in contempt of court. The hearing was ostensibly an opportunity for the judge in the case to hear both sides of the argument and make a decision. But it also raised larger questions about how much power and credibility the S.E.C. has amid the deregulatory environment of the Trump era, and whether powerful tech titans can be made to comply with the agency’s rules.
In addition to running Tesla, which designs and manufactures electric cars, Musk also oversees SpaceX, an aerospace manufacturer, and the Boring Company, which is seeking to build tunnels to relieve traffic congestion in Los Angeles. Musk has more than twenty-five million followers on Twitter, and many of his posts are amplifications of positive news about Tesla, or correspondences with Tesla car owners about their driving experiences. He easily gets drawn into Twitter arguments with critics, and, on occasion, according to the S.E.C., his tweets have contained information about Tesla’s business operations that sent the stock price flying. On August 7, 2018, during a public feud with short-sellers who were betting that the company would miss its sales targets and the stock would go down, Musk tweeted, “Am considering taking Tesla private at $420. Funding secured.” (The stock rose eleven per cent that day, to $379.57.) According to evidence that the S.E.C. presented in its complaint, the message raised alarm bells inside Tesla. Twelve minutes after Musk published the tweet, Tesla’s head of investor relations sent a text to Musk’s chief of staff that said, “Was this text legit?” Soon after, business reporters starting texting and e-mailing Musk and others at the company, wanting to know if he had just disclosed a major piece of news: “Are you serious? It seems like you are dancing into some pretty tricky legal territory by messing about with the markets this way. Is there an actual explanation coming?” one wrote to Musk. Another texted Musk’s chief of staff, “Quite a tweet! (Is it a joke?).”
Although Musk had held meetings with potential investors, there was allegedly no funding secured, and, on September 27th, the S.E.C. filed a complaint against Musk, accusing him of publishing “false and misleading statements…disseminated via Twitter.” The case was settled a few days later, with Musk and Tesla agreeing to pay a forty-million-dollar fine. As part of the agreement, Musk agreed to seek pre-approval of any social-media posts in the future that “contained or reasonably could contain information material to Tesla or its shareholders.”
Since then, Musk has almost seemed to go out of his way to antagonize the S.E.C. During an interview that aired on “60 Minutes,” in December, he said that he wasn’t seeking pre-approval of his Twitter postings, as his S.E.C. agreement said he was supposed to, and told the correspondent Lesley Stahl, “I guess we might make some mistakes, who knows. Nobody’s perfect.” He went on to add, “Let me be clear. I do not respect the S.E.C. I do not respect them.” Then, on February 19th, he struck again, tweeting, “Tesla made 0 cars in 2011, but will make around 500k in 2019.” A few hours later, he posted another message that seemed to correct the first one: “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.” The initial message appeared to contain details about production metrics that might not have been public, while the second one looked to be the result of some internal intervention to correct the first. The S.E.C. demanded to know whether the tweet had been pre-approved according to their settlement. After concluding that it had not been, the S.E.C. filed a motion asking the court to find Musk in violation of their agreement. (According to a statement from Musk, “The tweet in question was true, immaterial to shareholders, and in no way a violation of my agreement with the SEC.”)
Although Musk has previously voiced his disrespect for the S.E.C., on Thursday he arrived in court wearing a black suit and dark tie, with his hair neatly trimmed, and took a seat with his lawyers at the defense table. An enforcement attorney from the S.E.C. named Cheryl Crumpton presented the agency’s case. Standing at a lectern facing the judge, Alison Nathan, Crumpton said that Musk had failed to “submit a single tweet for pre-approval” during the two months since the agreement had been signed, essentially monitoring himself and making up his own rules. “He is just blowing past the pre-approval procedure,” Crumpton went on. As she spoke, Musk sat erect in his chair, his mouth resting in a semi-frown; he occasionally narrowed his eyes and cocked his head to one side. The judge pressed Crumpton, presenting her with various hypotheticals. If Musk posted a tweet that simply repeated information that was already out there, would that violate the agreement? “Or if he forwards a tweet—I think that’s a ‘retweet,’ ” Nathan said at one point, eliciting laughter. “This is the danger of judges not using social media.”
Nathan led the S.E.C. attorney into a tangle of what-if scenarios; Nathan seemed to imply, at various points, that the S.E.C. was holding Musk to a standard that wasn’t clearly defined, which wasn’t sufficient grounds for a contempt-of-court finding. The exchange descended into an abstract debate about the definition of the word “material” as it pertains to information that might affect a company’s stock price. Crumpton became increasingly flustered. Musk and his lawyers, meanwhile, were huddling and whispering, writing notes and passing them back and forth. Soon, Musk was nodding energetically each time the judge presented Crumpton with another pointed question. By the time Musk’s attorney stood up to argue their side of the case, it seemed clear that Nathan had reservations about granting the severe sanctions that the S.E.C. was asking for.
After everyone had spoken, Nathan indicated that she had something decisive to say. “Court orders will be followed,” she said sternly. “I don’t care if you’re a small potato or a big fish.” However, she went on, she had concerns about the S.E.C.’s decision to file a contempt motion—a very serious move—without first trying to find a compromise with Musk. “My call to action is for everyone to take a deep breath and put their reasonableness pants on and meet for at least an hour to work this out,” Nathan said. It was a blow for the S.E.C., and a boon for Musk’s Twitter account.
The courtroom was silent for a few moments as Musk conferred with his lawyers, seemingly trying not to gloat. Then he swept out of the room at the center of a group of people and strode into the hallway. “I’m very happy,” he said, stepping onto the elevator. “I’m very impressed with this judge and her analysis.” He exited the courthouse with his attorneys and descended the stairs, and reporters and photographers engulfed him as he walked toward his car. “Elon! Elon!” people yelled. Finally, he made it to the door of the waiting vehicle, a Tesla Model S, and turned toward the crowd. “I feel very much loved,” he said. Then he climbed into the passenger seat, closed the door, and the car drove away.