Detroit – The US Securities and Exchange Commission denies allegations that it violated Elon Musk’s free speech rights by attempting to force a 2018 securities fraud settlement.
In an appeals memorandum filed late Thursday, the committee said Musk, the Tesla CEO, waived his First Amendment rights by agreeing to the settlement and amendments. It also rejected Musk’s argument to cancel the agreement because he signed it under financial duress and did not understand it.
And the SEC argued that doing its work in the interest of shareholders and the markets outweighed Musk’s interest in being able to tweet about Tesla without Tesla’s approval.
“Mask’s agreement protects investors by ensuring that the information the public uses to make decisions about Tesla securities is accurate and consistent with what Tesla says,” the agency brief said.
The dispute stems from an October 2018 agreement with the Securities and Exchange Commission that Musk signed that includes his comments on Twitter, which Musk bought this year for $44 billion.
Musk and Tesla each agreed to pay $20 million in civil penalties over Musk’s tweets about obtaining “secured financing” to take Tesla private at $420 per share.
Funding was far from closed, and the electric car company went public, but Tesla’s share price jumped after that. The stock is now trading around $122. The settlement outlined governance changes, including the removal of Musk as chairman of the board, as well as the pre-approval of his tweets by Tesla’s attorneys.
In April, US District Judge Louis Lehman in New York denied Musk’s bid to evict the settlement. He also denied a request to quash a subpoena from Musk for information about potential violations.
Lemon’s ruling said Musk posted the tweets without obtaining prior consent, but the judge later wrote that he did not intend to pass judgment on the issue.
In his filing with the Second Circuit Court of Appeals, Musk’s attorney, Alex Spiro, asserted that the SEC is illegally muzzling the Tesla CEO, violating his rights to free speech with his continued attempt to force the settlement.
Musk’s September appeal brief says the clause requiring prior approval before tweeting about the electric car company is “a government-imposed gag over Mr. Musk’s speech before it was done.”
But the SEC said in its response that Musk “knowingly and voluntarily waived any First Amendment rights” by signing the settlement.
“Musk indicates that his waiver was somewhat invalid, but it is naive to think that the Tesla CEO did not understand the agreements he negotiated and signed,” the SEC wrote.
The settlement does not prevent Musk from tweeting about Tesla or other matters, the SEC wrote, and does not put the court or the SEC in a position to review his tweets prior to publication. Instead, it required him to comply with Tesla’s policies regarding the supervision of physical communications related to Tesla. It had no effect on tweets or other communications unrelated to Tesla, the SEC wrote.
The Securities and Exchange Commission is investigating whether Musk violated the settlement with tweets in November 2021 asking Twitter followers if he should sell his 10% stake in Tesla.
“The prospect of the committee continuing to evaluate Musk’s disclosures — and his compliance with Tesla’s controls — was not foreseeable,” the SEC wrote.
In his appeal brief, Alex Spiro, Musk’s attorney, asserted that the SEC is continually investigating Musk for topics not covered by the settlement. The court is required to strike out or amend the informed consent ruling.
Furthermore, Musk’s speech is chilling due to the threat to launch investigations and sue the SEC for contempt of court, according to the memo.
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