Lawyers for CEO Elon Musk of Tesla (TSLA) - Get Report this week asked a judge to let them file additional arguments against a U.S. Securities and Exchange Commission request that the court find the flamboyant executive in contempt. But every hour that passes without a response indicates that the odds are growing that U.S. District Court Judge Alison Nathan will refuse to look at additional material.
Why? Well, just over a week ago, the SEC submitted a request to file an additional 15 pages of arguments as to why Nathan should rule that Musk is in contempt of court. Nathan granted that motion the same day.
But this Monday, Musk's lawyers made a similar request to submit 10 pages of additional arguments by Friday. More than 24 hours have now passed without a peep from the judge.
Now, approving such a request would take the judge's staff about one minute to type up. It's a paragraph consisting of a sentence or two. However, denying the request would likely take longer to formulate -- and it sounds to me like that's what's going on right now.
The SEC wants Nathan to find Musk in contempt of court for allegedly violating a settlement the two sides reached last September over the Tesla CEO's infamous "take-private" tweets. That's where Musk claimed last Aug. 7 that he was considering taking TSLA private at $420 a share, with the financing already "secured."
But it turns out that Musk didn't have the financing all lined up, which prompted the SEC to claim his tweet violated federal laws against manipulating stock prices by releasing false information. Musk agreed as part of a settlement over the matter to pay a $20 million fine, step down as Tesla's chairman and have a company lawyer review all of his Tesla-related tweets before they became public.
However, the SEC has argued that subsequent Musk tweets have gone out without review, violating the settlement. The agency wants Nathan to find Musk in contempt of court as a result, which could lead to such sanctions as the government forcing the entrepreneur to step down as Tesla CEO.
I obviously don't know what will happen in the end with all of this. Even if Nathan rules against Musk's request to submit another 10 pages of arguments, that doesn't necessarily mean she'll ultimately find him in contempt of court. In the end, justice is fundamental, not procedural (as Murray Rothbard would have said).
However, consider this. If Judge Nathan does strike down Musk's procedural request at this juncture -- say, within the next few hours -- the market will probably interpret that negatively for Tesla stock.
Such a move might not impact Nathan's final verdict, but the market would likely "shoot first and ask questions later." I'm guessing Tesla shares would see another leg down of 3% or 5% (or whatever).
On the other hand, if Nathan does approve Musk's lawyer's request to submit a final 10 pages of arguments, I doubt Tesla stock will move much at all. In other words, I believe that the risk-vs.-reward quotient on the next move in this court drama is tilted in favor of Tesla bear. And that's good news for me, because I've long been shorting the stock.
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At the time of publication, Wahlman was short TSLA, although positions may change at any time.