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Elon Musk Has His Day in Court

Elon Musk’s surprise visit to a court ended up going relatively OK shouldn’t obscure what an unnecessary distraction he’s created.

Elon Musk Has His Day in Court
Elon Musk. (Photographer: Albin Lohr-Jones/Pool via Bloomberg)

(Bloomberg Opinion) -- The man showed. Shortly before 2 p.m. Thursday, when attorneys were scheduled to begin oral arguments in a federal courtroom in lower Manhattan, Elon Musk walked in and took a seat. It came as a surprise. His presence wasn’t required. He didn’t speak, nor was he asked to, during roughly two hours of his lawyers facing off against those representing the Securities and Exchange Commission, which wanted Judge Alison Nathan to find him in contempt.

Did Musk come all that way because he was worried? I overheard one prominent short-seller of Tesla Inc. sitting in the gallery whisper to someone else, “It shows how scared he is.” More like, it was just the smart thing to do; best to be on hand and show respect in case the proceeding didn’t go his way. 

It may not have mattered much, though. Almost from the start, Judge Nathan began picking at what she clearly saw as a loose thread in the settlement Musk was accused of violating, related to how it defined materiality in relation to the CEO’s written communications, including his tweets. She peppered the SEC attorney with questions in an attempt to get to a solid definition. When Musk’s counsel made his counterarguments, he duly emphasized the “murk” of the agreement as a reason to hold off deploying the “hammer” of ruling his client in contempt.

It may seem obvious that Musk tweeting production guidance that didn’t match earlier published guidance – as he did on Feb. 19 before backtracking – should count as material when it comes to a company whose stratospheric valuation rests on assumptions about growth. But let me tell you, when you’re sitting in a courtroom listening to exchanges about the materiality of a hypothetical edit to a hypothetical pre-approved tweet, your mind wanders to the question of how many angels might actually fit on the head of a pin and then you begin to doubt everything.

In any case, Judge Nathan was clearly uncomfortable taking the step of finding Musk in contempt over a settlement she regarded as ambiguously worded, concluding she had serious concerns that, no matter what she decided, the issue “will not be resolved.” Calling on Musk and the SEC to “put reasonableness pants on and work this out,” the judge effectively tossed it back to them to agree on a revised settlement with clearer language.

Musk avoided what could have been an embarrassing rebuke as well as potentially bigger fines and even, if the SEC got its way, having to turn in a monthly report card on his communications. Judge Nathan warned him to “proceed cautiously” and left the door open to further action if the two sides can’t agree among themselves. For now, though, it looks like the SEC swung too hard for the judge’s tastes and missed.

It’s important to note, however, that this whole episode is an unnecessary distraction for Musk and his company. And that company, as Wednesday evening’s dreadful quarterly sales numbers demonstrated, has bigger problems to deal with and little room for distraction. Musk’s Twitter habit and taunting of the SEC have created needless risks for him, Tesla, and ultimately its shareholders – and all for no good reason. That his surprise visit to the inherently unpredictable forum of a Manhattan courtroom ended up going OK, relatively speaking, shouldn’t obscure that.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.

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