Elon Musk Lawyers Appeal To Remove SEC Tweet “Muzzle”

Tesla CEO Elon Musk continues to rail against his 2018 agreement with the US securities regulator, that requires some of his tweets to be vetted by a Tesla lawyer.

It is fair to say that Elon Musk has a fractious relationship with the US Securities and Exchange Commission (SEC). In October 2018 for example Musk tweeted that the US agency was the “shortseller enrichment commission.”

Then in December 2018 Musk publicly admitted that he had “no respect” for the SEC. Worse was to come in July 2020 when Musk tweeted this.

https://twitter.com/elonmusk/status/1278764736876773383?ref_src=twsrc%5Etfw

SEC settlement

The bad blood stems from August 2018, when Elon Musk surprised the markets, when he tweeted that he was considering taking Tesla private and that he had secured funding to do so.

Tesla stock then went into a period of unusual volatility and the privatisation deal never materialised.

As a result, Musk was almost immediately hit with two lawsuits which alleged that Musk’s tweets were fraudulent effort to attack short sellers.

A further lawsuit was added November 2021, when investment bank JPMorgan Chase also sued Tesla for $162 million, alleging Elon Musk’s privatisation tweet in 2018 cost it millions of dollars.

Those 2018 privatisation tweets brought Musk to the attention of the US financial regulator, and the SEC accused Musk of securities fraud, and alleged he made a series of “false and misleading” tweets about potentially taking Tesla private.

Indeed, the SEC sought to ban Elon Musk from acting as an officer or director of a publicly traded company.

But in the end, the US financial regulator forced Musk to step down as chairman of Tesla and pay $20m in penalties.

In addition, Tesla itself also had to pay a $20 million penalty.

Musk however was allowed to retain the CEO role.

Tweet oversight

As part of that deal, Musk had to submit any public statements (including tweets) containing material information about Tesla to vetting by its legal counsel before publishing them.

Some federal officials however felt that Musk got away lightly in the SEC’s agreement with Tesla.

In May 2019 SEC commissioner Robert Jackson made a rare public statement, stating he did not support the agreement reached between Musk and the SEC – citing Musk’s conduct.

In June 2021 the SEC also notified Tesla that two of Musk’s tweets from 2019 and 2020 – one about Tesla’s solar roof production volumes and one about the company’s stock price – hadn’t received the required pre-approval.

And the fight between Musk and the SEC carried into 2022.

Share sales

In February this year Musk and Tesla publicly accused the SEC last month of ‘unrelenting harassment’ in a New York courtroom.

The SEC responded to US District Judge Alison Nathan in Manhattan and argued that Tesla was not following proper procedures.

Shortly after that, it emerged that the SEC was investigating Elon Musk and his brother Kimbal Musk over stock sales.

That investigation had begun in 2021, after Kimbal Musk sold Tesla shares valued at $108 million, one day before Elon Musk had polled Twitter users, asking whether he should offload 10 percent of his stake in Tesla.

Musk appeal

In early March this year, Elon Musk and his lawyers asked a US federal judge to terminate his 2018 agreement with the US securities regulator.

But on 27 April, US District Judge Lewis Liman rejected Musk’s bid to throw out the consent decree altogether.

Now Reuters has reported that Musk’s lawyers have filed an appeal, and called the pre-approval mandate a “government-imposed muzzle” that inhibited and chilled his lawful speech on a broad range of topics.

They also said the requirement violated the US Constitution, and undermined public policy by running “contrary to the American principles of free speech and open debate.”

The SEC declined to comment on Wednesday. It is expected to file its own brief with the appeals court, Reuters reported.

In Tuesday’s filing, Musk’s lawyers said it was time to rein in the SEC, which is keeping Musk under “constant threat” it might reject his view of which disclosures require pre-approval.

“Under the shadow of the consent decree, the SEC has increasingly surveilled, policed, and attempted to curb Mr. Musk’s protected speech that does not touch upon the federal securities laws,” the lawyers wrote. “Any objective served by the pre-approval provision has been served.”