The SEC dismisses Musk’s try and exit the “funding-backed” settlement

Elon Musk, Chief Executive Officer of Tesla Inc., exits court in San Francisco, California, Tuesday, January 24, 2023.

Marlena Slots | Bloomberg | Getty Images

That’s what the SEC argued this week in a letter to the US Circuit Court of Appeals for the Second Circuit in New York Tesla CEO Elon Musk still needs a so-called “Twitter sitter” and that a previous settlement agreement between them be fully constitutional and valid.

Now a hundred billionaire, Musk wrote on Twitter in 2018 that he had “secured funding” to take his electric vehicle company private at $420 a share and that “investor support” for such a deal was “confirmed.” Trading in Tesla halted following his tweets, and the automaker’s stock price fluctuated for weeks.

When the SEC charged him with civil securities fraud in response to those tweets, Musk and Tesla came to terms and signed a revised consent decree in 2019. As part of the settlement, Tesla and Musk agreed to pay $20 million in fines, and Musk agreed to step down from his role as Tesla’s CEO for three years.

Among other things, Musk agreed to a “Twitter sitter”, colloquially speaking. He should work with a securities attorney at Tesla, who would review and approve his tweets before releasing them in any cases that may contain material business information about the company.

After they reached that agreement, Musk has repeatedly said that he disrespects the Securities and Exchange Commission and in a series of press interviews and statements has suggested that no one screens his tweets before posting them.

Musk and his attorney Alex Spiro have argued since the settlement that the SEC effectively intimidated Musk into signing it and that even the terms of the revised consent decree constitute an “unconstitutional” violation of Musk’s free speech rights.

By appealing in the Second Circuit, Musk is attempting to vacate at least some of the terms of the earlier SEC settlement agreement.

Earlier this week, Spiro filed a letter in that court in New York, saying that a jury verdict in a separate shareholder class action lawsuit recently concluded in federal court in San Francisco should be considered on appeal. During the shareholder class action, Spiro and Musk convinced the jury that the Tesla CEO’s tweets in 2018 did not violate certain securities laws.

In its response letter this week, the SEC argued that “Musk waived his opportunity to test the commission’s allegations in court when he voluntarily agreed (twice) to a consent judgment.”

They also argue that the San Francisco ruling “does not say anything about the continued public interest in a negotiated settlement clause, which does not prevent Musk from tweeting precisely about Tesla or anything else, but requires Tesla to review Musk’s Tesla-related communications prior to publication.” to review, including via Musk’s Twitter feed — a communication channel earmarked for disclosure by Tesla.”

The SEC’s attorneys also questioned whether there was any legal basis to consider reversing the settlement all these years later.

A hearing for the appeal is scheduled some time this spring, but a final date has not yet been set.

Read the full letter here:

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