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1/ In light of the SEC's motion asking the federal district court judge to hold $TSLA's Elon Musk in contempt, let's consider the legal standard and then speculate a bit about the possible actions the court might take.
2/ We have some great assistance here, as the Hon. U.S. District Court Judge Alison J. Nathan wrote an opinion two years ago, deciding a contempt motion and setting forth her reasoning. (h/t @ko_strad for calling the opinion to my attention)
3/ As often happens with federal district court decisions, the opinion is not published in any official reporter system, but it can be found on WestLaw or Pacer, etc. The case is called Church & Dwight Co., Inc. v SPD Swiss Precision Diagnostics GMBH.
4/ After outlining the procedural history and factual background, Judge Nathan outlined the well-established legal standard. A court may hold a party in civil contempt only where the plaintiff establishes (a) the court's decree was clear & unambiguous and...
5/ ...(b) proof of noncompliance is also clear and unambiguous. While the defendant's conduct does not need to be willful for contempt remedies to be justified, the plaintiff must prove the defendant "has not been reasonably diligent and energetic in attempting to comply."
6/ In the facts of the case before her, Judge Nathan determined (quite correctly, it appears to me) that a contempt finding was not warranted. Here, though, the SEC has a lay-down case. The decree was clear and unambiguous...
7/ Proof of non-compliance is also clear. Indeed, $TSLA admitted it in its response letter to the SEC. And, debate me if you want, but it's just about a lay-down case that Musk was "not reasonably diligent and energetic" in attempting to comply.
8/ (Hey, why should a guy who does not respect the SEC attempt to comply?) I would go further and say that the SEC has demonstrated Musk's violation was willful, even though such a showing is not required.
9/ So, what will the court do? Obviously, we can but speculate. Judge Nathan understands sanctions based on a civil contempt finding should be designed to coerce the contemnor into future compliance or to compensate the complainant for losses resulting from past noncompliance.
10/ The SEC has not "prayed" for any specific relief, beyond asking that the Court enter an order to show cause, which the Court promptly did. But, the Court could presumably broaden its injunction or impose more fines.
11/ Indeed, Judge Nathan quoted from another case that "a better appreciation of the facts in light of experience indicates that the decree is not properly adapted to accomplishing its purposes." In other words, perhaps what's needed is a stronger decree.
12/ The hearing will be set for some time in March or, possibly, early April, depending on how the briefing schedule plays out. So much can happen between now and then to color the facts & circumstances. (Just consider the past 24 hours!)
13/ So, a hefty (or heftier) fine agains Musk? Surely a good possibility. An assessment of costs & attorneys fees in some measure? Also possible. Stricter pre-approval measures against Musk? Hard to know how that does any good if he decides to tweet regardless of the rules.
14/ Take away his twitter account, or restrict his access to it? Probably creates First Amendment issues.
15/ Put some pressure on the Board, as @matt_levine suggested in a recent and brilliant piece? Sounds like a great idea, though so far the SEC has not acted against the Board. bloomberg.com/opinion/articl…
16/ Remove Musk as CEO? I seriously doubt it. It feels too extreme. We simply want to force compliance. To remove Musk, the Court likely would require the SEC to reopen the case, go to trial, and create a solid record for taking such action.
17/ Is Musk going to fight this thing, as he telegraphed yesterday on Twitter, or will he show some penance & humility? And, what of the midnight tweeting we just saw? Was that yet another violation? So many things still in play.
18/ I'm guessing the discussions between the $TSLA Board and Musk are interesting. And that there may be discussions between the SEC & $TSLA as well. Trade carefully.
19/ Just noticed @matt_levine has another great piece up about this mess. As always, wickedly funny and insightful. bloomberg.com/opinion/articl…
