Elon Musk May Be Suspended As Tesla CEO For SEC Violation

The U.S. Securities and Exchange Commission (SEC) is said to be seriously considering the temporary removal of Elon Musk from his position as CEO of Tesla Inc. following a series of tweets in February that weren’t cleared by the commission.

The SEC might also impose a significant fine on Musk for this offense, which violates the terms of his settlement with the commission on Sept. 29, 2018. One of the conditions of the settlement is that SEC must vet any public comments from Musk (including tweets) that might affect investor decisions.

At the heart of the SEC’s latest dust-up with Musk is the latter’s tweet of Feb. 19 that said, “Tesla made 0 cars in 2011, but will make around 500k in 2019.”

Tesla’s stock fell by 5 percent after the SEC asked a judge to hold Musk in contempt for making this statement. In its court filing, SEC said Musk violated the September 2018 deal.

It noted that Musk “did not seek or receive pre-approval prior to publishing this tweet, which was inaccurate and disseminated to over 24 million people.” The CEO later revised projections about Tesla manufacturing numbers for the full-year 2019 but the damage had been done.

Securities lawyers say Musk is facing hefty fines and a possible suspension as CEO because of this incident. Musk and Tesla have been given a March 11 deadline to respond to an order from a federal judge explaining why the court shouldn’t hold him in contempt for his Feb. 19 tweet.

Former SEC attorneys and other securities lawyers cited by media said Musk looks to be in clear violation of the settlement.

Analysts, however, noted the SEC must tread gently in punishing Musk since Investors don’t want Musk removed as Tesla CEO. Forcing Musk to resign as CEO will be catastrophic for the company.

Musk also has other factors in his favor, said Elliot Lutzker, a former lawyer at SEC’s enforcement division.

Musk is still considered a first-time offender by SEC rules, Lutzker told CNBC. This means Musk hasn’t been convicted of a crime like Martha Stewart was in 2004. Neither has Musk been indicted on criminal charges like Elizabeth Holmes of Theranos in 2018. This being the case, Lutzker said it’s unlikely the SEC will seek to remove Musk from his post as CEO.

The likelier scenario is Musk will temporarily lose his job as CEO. Lutzker compared this penalty to Stewart’s settlement deal with the SEC. In this deal, Stewart agreed to a five-year ban as CEO, but remained the creative director of her firm, Martha Stewart Living.

“It is looking pretty ominous for Musk,” said Lutzker. “I could very easily see a very significant fine and a possible suspension.”