Attorneys representing the Securities and Exchange Commission (SEC) have urged the Supreme Court not to hear Elon Musk’s appeal of settlement conditions that Mr. Musk says would require “Americans who settle their cases with the government to ‘consent’ to be gagged for life.”
Elon Musk is challenging the details of a settlement agreement he signed with the SEC requiring him to seek pre-approval for comments about Tesla, of which he is the CEO. He also used to be chairman of Tesla’s board of directors.
He is arguing that his future speech “on matters ranging far beyond the charged violations” cannot be gagged as a condition of settlement by the agency.
However, attorneys for the SEC noted that Mr. Musk “concede[d] that his free speech rights do not permit him to engage in speech that is or could be considered fraudulent or otherwise violative of the securities laws” in the district court, and they stated that the terms of the settlement require him to seek pre-approval from Tesla’s own attorneys, not the government, before speaking publicly about specified matters related to the company, according to court documents.
“Further review is not warranted,” the government said.
After a social media post about Tesla by Mr. Musk in August 2018 caused “significant market disruption,” both parties agreed that Tesla Inc.’s senior executives would implement policy to require that in-house lawyers pre-approve any public written communications, including social media posts, about the company.
In his post, Mr. Musk had claimed to have “funding secured” to take Tesla private. This sent Tesla shares surging by more than 6 percent. But the SEC sued Mr. Musk, alleging that he had misled shareholders with his remarks about taking Tesla private, which never happened.
According to the SEC’s complaint, Tesla violated SEC Rule 13a-15, which requires securities issuers to “maintain disclosure controls and procedures” to “ensure that information required to be disclosed” is properly “recorded, processed, summarised, and reported.”
The SEC later subpoenaed Mr. Musk on Nov. 6, 2021, over multiple social media posts on Twitter “concerning his potential sale of a large portion of his holdings in Tesla,” in violation of the agreement.
The first of the Nov. 6, 2021, Twitter posts stated: “Much is made lately of unrealized gains being a measure of tax avoidance, so I propose selling 10% of my Tesla stock. Do you support this?” The next post stated that he would “abide by the results of this poll, whichever way it goes.”
Mr. Musk, who is also the owner of X Corp., the successor to Twitter, Inc., is challenging the future applicability of his initial agreement with the SEC.
Mr. Musk is seeking relief from the court from the judgment because “applying it prospectively is no longer equitable.”
The court of appeals observed that in his appeal, Mr. Musk was making a new argument “that any waiver of his First Amendment rights is unenforceable.” But it ruled that because he had “not made that argument before the district court,” the court of appeals deemed the argument based on the unconstitutional-conditions doctrine “forfeited.”
The court therefore never addressed the First Amendment challenge on its merits, court documents say.
On March 22, on behalf of the SEC, Solicitor General for the Department of Justice Elizabeth Prelogar told the Supreme Court that Mr. Musk’s arguments did not deserve a hearing.
“This court has consistently held that, in resolving litigation, parties may choose to waive even fundamental constitutional rights.”
Mr. Musk argued in his appeal that although he signed the agreement at the time, the terms are in violation of his inalienable First Amendment rights as protected according to the “unconstitutional-conditions doctrine.”
“The notion that an agency may wield its power to decide what parties it regulates may, may not, or must say in the future is deeply at odds with the First Amendment, including the right of the public and investors to hear what Mr. Musk has to say,” court documents say.
“Moreover, because SEC Gag Orders at issue are by their terms non-negotiable, they are unconstitutional conditions in violation of the First Amendment. A private party’s supposed ‘consent’ to a required condition of settlement cannot and does not give the federal government a power of suppression denied it by the First Amendment.”
The appeals court had argued that Mr. Musk “had ‘the right to litigate and defend against the [SEC’s] charges’ or to negotiate a different agreement.”
It cited a similar claim, Romeril v. SEC, which found that a voluntary agreement did not violate the unconstitutional-conditions doctrine.
