The SEC argued in a letter to the U.S. Court of Appeals for the Second Circuit in New York this week that Tesla CEO Elon Musk still needs a so-called “Twitter sitter,” and that an earlier settlement agreement between them is fully constitutional and valid.
Now a centi-billionaire, Musk in 2018 wrote on Twitter that he had “funding secured” to take his electric vehicle company private for $420 per share, and that “investor support” for such a deal was “confirmed.” Tesla trading halted after his tweets, and the price of shares in the automaker, seesawed 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 $20 million fines, and Musk agreed to relinquish his role as chairman of the board at Tesla for three years.
Among other terms, Musk agreed to a “Twitter sitter,” colloquially speaking. He was supposed to work with a securities lawyer at Tesla who would review and approve his tweets before he posted them in any instance when they may contain material business information about the company.
After they struck this agreement, Musk has repeatedly said that he doesn’t respect the Securities and Exchange Commission, and in a series of press interviews and depositions suggested that nobody reviews his tweets before he posts them.
Musk and his attorney, 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 “unconstitutional” infringement on Musk’s rights of free speech.
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 submitted a letter to that court in New York saying that a jury verdict in a separate, shareholder class action trial that concluded recently in a San Francisco federal court should be given consideration in the appeal. During the shareholder class action trial, Spiro and Musk convinced jurors that the Tesla CEO did not violate certain securities laws with his tweets in 2018.
In its reply letter this week, the SEC argued that “Musk waived his opportunity to test the Commission’s allegations at trial when he voluntarily agreed (twice) to a consent judgment.”
They also argue the verdict in San Francisco “says nothing about the continuing public interest in a negotiated settlement term that does not preclude 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 communication channel designated by Tesla for disclosure.”
The SEC lawyers also questioned whether there is any legal basis to consider undoing the settlement all these years later.
An oral argument for the appeal is slated for some time this spring, but a final date has not been set.
Read the full letter here: