Elon Musk, co-founder and chief executive officer of Tesla Inc., speaks during a Boring Co. event in Los Angeles, California, U.S. (Photographer: Patrick T. Fallon/Bloomberg)

Musk’s Snarky Tweet May Complicate Review of SEC Deal

(Bloomberg) -- Elon Musk’s tweet insulting the U.S. Securities and Exchange Commission days after reaching a settlement in a fraud suit with the agency may give pause to a judge who otherwise would be expected to rubber stamp it.

Tesla Inc.’s outspoken chief executive officer agreed on Sept. 29 to pay a combined $40 million to resolve claims that Musk misled the public by tweeting about his plan to take Tesla private -- a settlement that required Musk to neither admit nor deny the allegations.

But just a few days later Musk shot off a sarcastic tweet dubbing the SEC as the “Shortseller Enrichment Commission." He lobbed the insult even as Tesla and the agency try to win court approval of the hard-fought deal.

“He kind of pooh-poohed the settlement,” Roberta Karmel, a professor at Brooklyn Law School, said of Musk’s tweet to his 22.9 million followers. “It seems like that was a denial of some kind.”

U.S. District Judge Alison Nathan in Manhattan, who must approve the deal, gave the parties a Thursday deadline to file a joint letter to explain why she should do so. It remains to be seen what the judge will think of the tweet.

“If I were the judge I’d ask what’s going on here, you’re not supposed to do that,” Karmel said. “Usually you agree that ’neither admit nor deny’ means what it means.”

The judge could use Musk’s post-settlement tweet to ask Tesla about how the company will manage his tweets going forward, given that they triggered the underlying legal dispute, said Thomas Gorman, a former SEC official who now defends companies in actions brought by the agency.

“If I were the judge, I would bring that up and say it’s a personal statement from Musk and I’d like to know how things like this will be monitored,” Gorman, who isn’t involved in the case, said in a phone interview.

Ryan White, a spokesman for the SEC, and Dave Arnold, a spokesman for Tesla, both declined to comment.

The judge may use the sarcastic tweet to request additional information about Musk’s tweeting habits and what kinds of controls Tesla is prepared to put in place to manage the flow of information from the CEO’s personal account, the experts said. The judge is still likely to approve the deal, they said.

That’s largely because a judge from the same court in Manhattan in 2011 rejected a settlement between the SEC and Citigroup Inc. only to see his ruling reversed by an appeals court that gave judges in future cases very little wiggle room when weighing such deals.

The judge in the Citigroup case “was sort of slapped down,” Karmel said. “I think it is unlikely this judge will decide not to approve the settlement.”

The case is U.S. Securities and Exchange Commission v. Tesla Inc., 18-cv-08947, U.S. District Court, Southern District of New York (Manhattan).

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