SEC refutes Musk’s attempt to get out of ‘funding-secured’ settlement

Elon Musk, CEO of Tesla Inc., leaves court in San Francisco, California, U.S., on Tuesday, January 24, 2023.

Marlena Sloss | Bloomberg | Getty Images

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 a previous settlement agreement between them is fully constitutional and valid. is. .

Now a centimillionaire, Musk wrote on Twitter in 2018 that he had “secured funding” to take his electric vehicle company private at $420 per share, and that “investor support” for such a deal was “confirmed” . Trading in Tesla halted after his tweets and the price of shares in the automaker fluctuated for weeks.

When the SEC charged him with civil securities fraud in response to those tweets, Musk and Tesla settled and signed a revised consent decree in 2019. As part of the settlement, Tesla and Musk each agreed to pay $20 million in fines, and Musk agreed to relinquish his role as chairman of the board at Tesla for three years.

Among other things, Musk agreed to a ‘Twitter-sitter’, colloquially. He would work with a securities attorney at Tesla who would review and approve his tweets before posting them, at least when they might contain important business information about the company.

After they made this agreement, Musk has repeatedly said he disrespects the Securities and Exchange Commission, and in a series of press interviews and statements, he suggested that no one reviews his tweets before posting them.

Musk and his attorney, Alex Spiro, have argued since the settlement that the SEC effectively intimidated Musk into signing it, and that even the terms of the revised consent decree amount to an “unconstitutional” infringement of Musk’s right to free speech.

With the appeal in the Second Circuit, Musk is seeking to reverse at least some terms of the earlier SEC settlement agreement.

Earlier this week, Spiro filed a letter in that New York court saying a jury verdict in a separate shareholder class action lawsuit that recently concluded in a federal court in San Francisco should be considered in the profession. During the shareholder class action trial, Spiro and Musk convinced jurors that Tesla’s 2018 CEO was not violating certain securities laws with his tweets.

In its letter of response this week, the SEC argued that “Musk forgoes his chance 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 continued public interest in a negotiated settlement term 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 communication channel designated by Tesla for disclosure.”

The SEC attorneys also questioned whether there is any legal basis for considering overturning the settlement all these years later.

A plea for the appeal is scheduled for this spring, but a definite date has not yet been set.

Read the full letter here:





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