Thread by @KlasfeldReports

Good morning from New York.

Oral arguments over whether Elon Musk should face contempt of court over his misleading Tesla tweet will take place this afternoon at 2pm.

I will be covering the proceedings live.

Background @CourthouseNews: courthousenews.com/%ef%bb%bfsec-w…

Musk unexpectedly attends today's hearing in the Southern District of New York.

https://twitter.com/thesheetztweetz/status/1113856552493035520

U.S. District Judge Alison Nathan will decide whether to hold Musk in contempt for his tweets. Large and packed courtroom, with the gallery filled and attorneys at their tables.

Tag-teaming coverage with me today is my colleague @JRuss_JRuss.

"All rise."

Here we go. The parties have introduced themselves.

SEC's attorney Cheryl Crumpton will kick off oral arguments.

Crumpton's first line: "We are here today because Elon Musk has disregarded the preapproval requirements of this court's order."

Crumpton says that Musk has not submitted a single tweet for preapproval since that party was implemented.

Nathan grills Crumpton about what Tesla-related tweets specifically require preapproval. Not all of them do.

Crumpton quotes a Musk brief stating that he has staff reviewing his "tweets in real time upon publication."

"That's not what the SEC negotiated in its settlement," she says.

"You're taking that out of context, aren't you?" Judge Nathan interjects.

Nathan notes that Musk also asserted that he cut down on his tweeting "substantially."

Crumpton: Your honor has focused as we did on the fact that there were shifting justifications here.

(She's referring to why that tweet wasn't preapproved.)

Caproni: They did get, within a few hours, a corrective tweet, did they not?

Crumpton agrees but adds that not what the court ordered Musk to do.

"The whole point is to stop that before it happens in the first instances," Crumpton says.

Crumpton says that the settlement's language is "clear and unambiguous."

Nathan counters: "What does it mean?"

Crumpton offers explanations of various terms, e.g. whether a tweet "contains" info that is "material."

Nathan: The question is, is it clear and unambiguous?
Crumpton: It is clear and unambiguous.
Nathan: What does it mean?

She presses again.

Crumpton argues that quibbling with the definition gives defendants like Musk too easy an out, the ability to assert: "I disagree with the SEC's interpretation, and voila, it is ambiguous."

This is the passage whose clarity is under dispute.

Crumpton notes that, until the tweets that brought Musk to court today, Tesla had never said up until that tweet how many cars it was going to produce.

Nathan wants to know whether Musk tweeting already-public information could be "material."

Crumpton says it's fact-specific.

"It depends is the answer," Crumpton says.
"Why?" Nathan presses.

Noting the SEC's reluctance to give categorical answers, Nathan says: "Tell me what authority you have for imposition of contempt, when you have... what you just described."

Nathan asks whether the SEC ever has used the standard "reasonably could contain," and notes that Crumpton previously ducked that question by describing the case as unusual.

As should be obvious by now, Nathan appears deeply skeptical that "reasonably could contain" is language that is "clear and unambiguous," under the standard for imposing sanctions for a breach.

"Regardless of the standard the court uses," Crumpton said, Musk's tweet was material "any way you cut it."

In case you missed it, this is the tweet that brought us to court today.

https://twitter.com/elonmusk/status/1098013283372589056

This was the corrective tweet.

https://twitter.com/elonmusk/status/1098080063801585664

Crumpton: In the past, she notes, Musk said his $20 million penalty was "worth it."

She asks Judge Nathan to impose a "meaningful fine to make it not 'worth it.'"

Musk's attorney John Hueston begins his arguments hitting the same point over which the judge expressed skepticism.

"There should be a clear and unambiguous policy" before finding contempt, Hueston says.

Nathan asks Hueston: "What could [Musk] be found in contempt of court for?"

Hueston argues that contempt should be off the table given the "murk of the policy in place."

Nathan: "The court needs to give clear and unambiguous orders."

If the terms are unclear, she suggest, the consent judgment may need to be vacated or modified.

* suggests

"In the case of ambiguity, no contempt can be brought," she says. "But if you prevail, something has to change."

Hueston says that Nathan doesn't necessarily have to be "at the table."

"I'm busy," Nathan quips, to laughter in the court.

Nathan and Hueston are volleying hypotheticals about what tweets would require pre-approval under the settlement.

Hueston notes that Tesla wrote a letter stating that they didn't believe Musk's tweet was material.

"There has to be deference to the company's interpretation of its own policy," he said.

Nathan said that Musk can't substitute the terms of the settlement for his own view.

"He can't decide on a narrower version of that just because it's arguably ambiguous," she said.

Nathan also appears skeptical about Hueston's argument that she should defer to Tesla.

"If you prevail today, your argument is that I have no future role?" she asked.

Not necessary, Hueston responds, adding Tesla's view deserves deference.

Latching onto the contradiction, Nathan deadpans: "I do apply it myself, but I defer to Tesla?"

Hueston reads through a selection of 15 tweets that the SEC flagged as questionable.

"Not one of those 15 is misleading. Not one is inaccurate."

Hueston cites their MIT expert as stating that the stock price didn't move after the tweet that brought the parties to court today.

"The market gave the judgment: immaterial."

Nathan: "If I do determine that Mr. Musk is in contempt, do you want to respond to what's been suggested as appropriate sanctions?"

Hueston replies there shouldn't be any contempt.

"I wasn't clear on that, so thank you," Nathan quips, drolly.

(She had been referring to the severity of sanctions if any are imposed. Hueston doesn't believe they should be imposed at all, and certainly not as heavy as the SEC wants.)

Hueston finishes his arguments. Crumpton's back up.

Crumpton notes that, since the settlement, Musk tweeted upward of 80 times about Tesla.

"We had assumed that every one was proceeding in good faith, even after the '60 Minutes' interview," she said, proceeding to read quotes from that interview.

A transcript of the interview quoted in the SEC's brief.

Crumpton: "Tesla has, for whatever reason, thrown its lot with Mr. Musk."

Nathan interjects later: "If that's right, has Tesla done what is required of them."

Crumpton calls the company's conduct "troubling."

Nathan: "I must and I will ensure that court orders are followed," regardless of whether you're a "small potato or a big fish."

"That's the rule of law," she said.

Nathan says that she has "serious concerns" that her ruling won't resolve the controversy.

"My call to action is for everyone to take a deep breath, put your reasonableness pants on and work this out."

She wants the parties to get together to propose a resolution and come back to her in two weeks.

Adjourned.

Unpacking her instructions, and I'll tweet out the specifics for more clarity soon.

Musk seems to have liked what he saw:

He told reporters that he's "very happy" with the outcome and "very impressed with Judge Nathan's analysis."

Quick hit on today's proceedings, a dual byline with my colleague @jruss_jruss.

Bottom line: Judge Nathan sends Musk and the SEC back to the negotiating table for two weeks before making any decision on whether sanctions are warranted.

courthousenews.com/cloudy-settlem…