Before reporting back to a federal courtroom this week, the Securities and Exchange Commission must meet with Tesla Inc. CEO Elon Musk. And they must dress appropriately — or at least show up psychologically outfitted to work things out.

Will they wear the “reasonableness pants” a stern federal judge suggested in a hearing this month? Or will they come donned in something more audacious — battle armor, perhaps?

At a minimum, the stakes may include a hefty fine for Musk, who stands accused by the SEC of violating a 2018 settlement that prohibits him from tweeting information that could sway Tesla’s stock price without review by others at the company. Or it could be worse for him: Should Musk be found in contempt of court, as the SEC has asked, he could, theoretically, be stripped of his position — a move that undoubtedly would upend Tesla’s future and perhaps that of his other companies.

Judge Alison Nathan stopped far short of that scenario this month. Rather than rule on the SEC’s complaint during an April 4 proceeding, she chided both sides to “take a deep breath, put your reasonableness pants on, and work this out.” Nathan gave the SEC and Musk two weeks to forge a compromise and mandated they meet for at least one hour before reporting back to her New York courtroom Thursday, April 18.

While the bickering has been particularly caustic, legal experts ultimately expect a pragmatic compromise to be reached between the regulatory agency and the de facto leader of America’s space program. (His Space Explorations Technology Corp. last week launched the Falcon Heavy megarocket from NASA’s Kennedy Space Center and landed the three boosters so they can be flown again — Musk’s signature contribution to space travel.)

“He thumbs his nose at everyone,” said Peter Henning, a law professor at Wayne State University in Detroit, who has worked as a senior attorney in the Division of Enforcement at the SEC. “So who’s going to crack down? The SEC has stepped up and said, ‘We’ll try.’

“But from the SEC’s point of view, they don’t want the judge to come back and say, ‘The order you came up with is too vague, and I can’t find him in contempt.’ This is just too high-profile of a case for them to take a loss. They’re going to want to come up with some face-saving way for each side to say, ‘We’re good,’ and let this be strike two.”

Strike one started last August, when Musk tweeted that he was thinking about taking the automaker private at $420 a share and that he had funding secured to execute such a deal. He later said that he thought there was sufficient backing for such a deal, but in fact the funding was not secured.

After that incident — which put the stock price on a roller coaster — Musk and Tesla settled with the SEC, agreeing that Musk would step down as chairman and abstain from tweeting material business information without prior review by a lawyer or other company representative.

Then on Feb. 19, Musk tweeted, “Tesla made 0 cars in 2011, but will make around 500k in 2019.” He later revised his statement, saying he only meant the company would be producing vehicles at an annual rate of 500,000 by the end of the year.

The company had said it would make as many as 500,000 vehicles for the year, so the first tweet indicated production would be at the high end of the projected range, but the later one meant it would fall short of that level.

So the SEC filed its complaint Feb. 25, asking Musk to be held in contempt of court. Lawyers for the agency said the tweet violated the “clear and unambiguous terms” of their agreement.





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