Musk ordered to comply with SEC rules on 2018 tweets
DETROIT (AP) — A federal judge has rejected Elon Musk’s bid to dismiss a securities fraud settlement over tweets claiming Musk had the funding to take Tesla private in 2018.
Judge Lewis Liman also on Wednesday denied a motion to quash a subpoena from Musk seeking information about possible violations of his agreement with the U.S. Securities and Exchange Commission.
Musk had asked federal court in Manhattan to overturn the settlement, which required his tweets to be cleared by a Tesla attorney before being published. The SEC is investigating whether Tesla’s CEO violated regulations with tweets last November asking Twitter followers if he should sell 10% of his Tesla stock. Limon’s ruling said Musk made the tweets without getting prior approval.
The entire dispute stems from an October 2018 settlement with the SEC that Musk signed. He and Tesla each agreed to pay $20 million in civil penalties for Musk’s tweets about securing “funding” to take Tesla private at $420 a share.
Funding was far from locked in and the electric vehicle company remains public, but Tesla’s stock price surged. The settlement specified governance changes, including ousting Musk as chairman of the board, as well as preapproving his tweets.
Limon’s decision clears the way for the SEC to seek a court order executing the subpoena and for an investigation into another possible rule violation by Musk.
Musk’s attorney, Alex Spiro, argued that the SEC was using the settlement and “almost limitless resources” to chill Musk’s speech. He wrote in court papers that Musk signed the settlement when Tesla was a less mature company and the SEC action jeopardized the company’s funding at a critical time.
He also alleged that the SEC’s subpoena was unlawful and that the agency could not take action regarding Musk’s tweets without court authorization.
But in a 22-page ruling, Liman wrote that Musk’s claim that economic duress led him to sign the settlement is “totally unconvincing.”
Even though Musk feared litigation with the SEC could financially ruin Tesla, “it doesn’t get him out of the judgment he voluntarily signed,” Liman wrote.
The judge also said the argument that the SEC used the settlement order to harass Musk and launch investigations was “without merit.”
“Musk could hardly have thought that at the time he entered into the executive order (settlement) he would have been immune from non-public investigations by the SEC,” Liman wrote. “It’s no surprise that when Musk tweeted that he was considering selling 10% of his stake in Tesla…that the SEC was wondering.”
Now the SEC could ask Liman to enforce the subpoena, which Liman says is the proper legal forum for Musk to challenge him. In the settlement, Musk also agreed not to deny the SEC’s allegations in the 2018 securities fraud complaint. The SEC may also investigate Musk’s recent denials.
Musk claimed in a recent interview that he did indeed anticipate the funding in 2018. But a judge in a separate case ruled his tweets about it were false.
An SEC spokesperson did not respond to a message asking if it would try to enforce the subpoena. A message was left Wednesday asking Spiro to comment on whether Musk would appeal Liman’s order.
Liman wrote in her ruling that the “secured funding” tweet was allegedly false. “Musk had not discussed the specific terms of the deal with any potential financial partners, and he knew the potential transaction was uncertain and subject to many contingencies,” Liman wrote.
He also agreed with the SEC that Congress gave him broad powers to investigate whether someone violated federal securities laws. “Musk may wish it were otherwise, but he remains subject to the same enforcement authority — and has the same means to challenge the exercise of that authority — as any other citizen,” Liman wrote.
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