A federal appeals court has rejected Elon Musk’s plea to dismiss or amend the 2018 fraud settlement he reached with the U.S. Securities and Exchange Commission (SEC). The settlement, which established a consent decree mandating that Musk’s tweets be vetted by a lawyer before posting, will remain in effect.
The decision raises questions about Musk’s compliance with the order, given the sheer frequency and volume of his tweets, especially considering his recent acquisition of Twitter. Nevertheless, the court dismissed Musk’s contention that the SEC was exploiting the consent decree to engage in “bad-faith, harassing investigations” of his protected speech, deeming his argument devoid of merit.
Contrary to Musk’s claims, the court highlighted that the SEC had only scrutinized three of his tweets to date. These include the notorious 2018 tweet about securing funding for Tesla, which led to the consent decree, a subsequent $40 million fine, and Musk’s removal as Tesla’s chairman. The other two tweets under investigation contained misleading information about Tesla’s vehicle production and a proposal by Musk to sell 10 percent of his Tesla stock.
“The court finds plausible grounds to believe that each tweet violated the terms of the consent decree,” stated the Court of Appeals for the Second Circuit in New York City, as outlined in its ruling (pdf).
The saga began on Aug. 7, 2018, with Musk claiming in a tweet that he had secured funding to take Tesla private at $420 per share. (Tesla has been a publicly traded company since 2010.) The SEC immediately launched an inquiry and ultimately determined that Musk had not discussed such a transaction at the mentioned price with any potential funding source, despite having held a few meetings with Saudi Arabia’s sovereign wealth fund.
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The settlement with the SEC led to Musk relinquishing his position as Tesla’s chairman and introduced the requirement for a Twitter sitter.
Last February, Musk emerged unscathed in a case where investors accused him of fraud based on his August 2018 tweets about taking Tesla private. Had the jury found him liable, Musk could have faced potential damages amounting to billions of dollars.
However, since agreeing to the SEC settlement, Musk has persistently sought to escape the consent decree’s provision of having a lawyer review tweets that could materially impact Tesla before their publication. If the Twitter sitter exists, their identity remains shrouded in mystery, as Tesla has declined to disclose their name.
Undeterred by Musk’s arguments for unrestricted tweeting, the court remained resolute in its decision.
“Musk had the option to litigate and defend against the SEC’s charges or negotiate an alternative agreement if he wanted to preserve his right to tweet without even limited internal oversight regarding certain Tesla-related matters. However, he consciously chose not to take either route,” emphasized the court of appeals.
“Having made that choice, he cannot use Rule 60 to reopen a final judgment merely because he has since changed his mind.”
