Tesla Inc. CEO Elon Musk leaves court in San Francisco, California, U.S., Tuesday, Jan. 24, 2023.
Marlena Sloss | Bloomberg | Getty Images
The SEC argued in a letter to the US Court of Appeals of the Second Circuit in New York this week that Tesla CEO Elon Musk still needs a so-called “Twitter sitter,” and that a previous settlement agreement between them is fully constitutional and valid.
Now a centi-billionaire, Musk wrote on Twitter in 2018 that he had “financing secured“to take his electric car company private for $420 per share, and that “investor support” for such a deal was “confirmed.” Tesla’s trading was halted after his tweets, and the price of the automaker’s stock wobbled for weeks.
When the SEC charged him with civil securities fraud in response to those tweets, Musk and Tesla settled, signing a revised consent decree in 2019. As part of the settlement, Tesla and Musk each agreed to pay a $20 million fine, and Musk agreed to relinquish his role as Tesla chairman for three years.
Among other conditions, Musk agreed to a “Twitter sitter,” colloquially. He was supposed to work with a securities attorney at Tesla who would review and approve his tweets before publishing them in any case when they might contain material business information about the company.
After they struck that deal, Musk has repeatedly said he doesn’t respect the Securities and Exchange Commission, and in a series of press interviews and depositions suggested no one scrutinizes his tweets before he publishes them.
Musk and his lawyer, Alex Spiro, have argued since the settlement that the SEC effectively intimidated Musk into signing it, and that the terms of even the revised consent decree amount to “constitutional” infringements on Musk’s free speech rights.
With the appeal in the Second Circuit, Musk is trying to unwind at least some terms of the earlier SEC settlement agreement.
Earlier this week, Spiro sent in a letter to that New York court, saying a jury verdict in a separate shareholder class action that recently ended in a federal court in San Francisco should be considered in the appeal. During the shareholder class action, Spiro and Musk convinced jurors that the Tesla CEO did not violate certain securities laws with his 2018 tweets.
In its response letter this week, the SEC argued that “Musk waived his opportunity to test the commission’s allegations at trial when he voluntarily (twice) agreed to a consent judgment.”
They also argue that the San Francisco ruling “says nothing about the continuing public interest in a hearing period that does not prevent Musk from tweeting accurately about Tesla or other topics, but rather requires Tesla to review Musk’s Tesla-related communications before publication, including through Musk’s Twitter feed — a communications channel designated by Tesla for disclosure.”
The SEC lawyers also questioned whether there is any legal basis for considering undoing the settlement all these years later.
An oral argument for the appeal is expected sometime this spring, but no final date has been set.
Read the full letter here: