FILE PHOTO: Tesla Chief Executive Elon Musk stands on the podium as he attends a forum on startups in Hong Kong, China January 26, 2016. REUTERS/Bobby Yip/File Photo
October 4, 2018
By Jonathan Stempel and Sonam Rai
(Reuters) – A federal judge on Thursday gave Tesla Inc Chief Executive Elon Musk and the U.S. Securities and Exchange Commission one week to justify their settlement to resolve securities fraud charges against the head of the electric car company.
U.S. District Judge Alison Nathan in Manhattan said her regular practice is to have parties submit a joint letter, in this case by Oct. 11, to show why their settlement was fair and reasonable and would not hurt the public interest.
Musk and Tesla agreed to pay $20 million each, and Musk agreed to step aside as Tesla’s chairman for three years, to settle charges that Musk misled investors in a series of tweets on Aug. 7.
These included a tweet saying there was “funding secured” to take the Palo Alto, California-based company private at $420 per share.
Tesla was not charged with fraud. The settlement was announced on Sept. 29, two days after Musk was charged.
Nathan “may want to know why Tesla is paying a fine because the CEO doesn’t know when to shut up,” said Adam Pritchard, a University of Michigan law professor and former SEC lawyer.
Shares of Tesla extended earlier losses after Nathan issued her order, and were down $12.78, or 4.3 percent, at $282.02 in late afternoon trading.
The SEC and Tesla did not immediately respond to requests for comment.
Some judges have complained about being viewed as rubber stamps for SEC settlements.
Among them was Nathan’s colleague Jed Rakoff, who had objected to the SEC’s decades-old policy of letting some corporate defendants settle without admitting or denying wrongdoing, as Musk did.
But in 2014, the 2nd U.S. Circuit Court of Appeals overturned Rakoff’s rejection of a $285 million settlement between the SEC and Citigroup Inc, saying he should have given “significant deference” to the regulator.
The 2nd Circuit has jurisdiction over Nathan’s court, and Pritchard said the Citigroup decision likely foreshadows approval of Musk’s settlement.
“I do not think there is any serious chance of the settlement being rejected, based on 2nd Circuit precedent,” Pritchard added. “This is just a hoop to be jumped through.”
Separately, Tesla, which has long objected to media coverage of its vehicles’ crash records, said data show its vehicles have accidents or near misses far less often than other vehicles, including when driven in Autopilot mode.
The case is SEC v Musk, U.S. District Court, Southern District of New York, No. 18-08865.
(Reporting by Joanthan Stempel in New York and Sonam Rai in Bengaluru; Editing by Anil D’Silva and Lisa Shumaker)
