SEC says Elon Musk still needs a lawyer to approve his tweets

The U.S. Securities and Exchange Commission (SEC) says Tesla CEO Elon Musk still needs to get pre-clearance from lawyers before tweeting any Tesla-related information.

The SEC drafted its renewed position this week in a letter to the United States Court of Appeals for the 2nd Circuit in New York, arguing that a prior settlement agreement between the agency and Musk is fully constitutional and valid.

In 2018, Musk tweeted that he had “secured funding” to take Tesla private for $420 a share, and that investor support for the deal was confirmed. Tesla’s stock price fluctuated in the weeks that followed, prompting an SEC investigation to determine whether Musk had committed securities fraud.

Musk and Tesla settled without admitting wrongdoing. They each paid $20 million in fines, Musk resigned as Tesla chairman, and he agreed to run most Tesla-related communications through a lawyer before tweeting, lest he say something that affects the stock price.

In September 2022, Musk’s lawyers filed a brief with an appeals court to rid the executive of a “government-imposed muzzle” that “prevents[s] and relax[s] The legitimate speech of Mr. Musk. This was a month after a federal judge overturned Musk’s motion to end the same SEC settlement provision.

Earlier this week, Musk’s attorneys argued that a recent jury verdict in a separate trial should be considered in the appeal. In early February, Musk was found not liable for securities fraud in a class action lawsuit in which shareholders who lost money after Musk tweeted “Funding Secured” sued the executive for damages- interests.

“In light of the jury’s finding that Mr. Musk’s tweets did not violate Rule 10b-5, the SEC lacks support for both the consent decree itself and for his arguments on appeal,” Spiro writes. “The verdict provides an additional reason why the public interest in avoiding unconstitutional settlements easily subsumes the SEC’s alleged involvement in the consent decree.”

Lawyers may submit additional authorities to an appellate court after filing a factum and before the court issues a decision if they find a new legal authority directly related to the issue raised on appeal and likely to affect the outcome of the case.

The SEC rejected Spiro’s argument, saying a jury verdict in a private action for securities fraud does not qualify as “relevant and meaningful” authority. The agency also argued that Musk “gave up his opportunity to test the Commission’s claims at trial when he voluntarily accepted (twice) a consent judgment.”

The agency argued that the verdict did not meet the public interest involved in the negotiated settlement and did not preclude Musk from tweeting accurately about Tesla or other topics. SEC lawyers also questioned the legal basis for overturning the settlement years later.

The court can either accept Spiro’s letter or overturn it. An appeal argument is expected in the spring, but no date has been set.