Musk must obtain prior approval before tweeting about Tesla, a requirement he calls “government-imposed gags.”
U.S. securities regulators are unlawfully guzzling Tesla CEO Elon Musk and violating his right to free speech by continually trying to enforce a 2018 securities fraud settlement, Musk’s attorney alleges in a brief.
The document, filed late Tuesday in Manhattan federal appeals court, was written to support Musk’s appeal of a lower court’s April decision to uphold the settlement with the Securities and Exchange Commission.
The brief said that a provision in the settlement requiring Musk to obtain prior approval before tweeting about the electric car company is an illegal “government-imposed muzzle on Mr. Musk’s speech before it is delivered.”
The settlement required his tweets to be approved by a Tesla attorney before publication. The SEC is investigating whether Musk violated the settlement with tweets last November asking Twitter followers if he should sell 10 percent of his Tesla shares.
But in the brief, Musk’s attorney, Alex Spiro, claimed that the SEC is continually investigating Musk over issues not covered by the settlement. It asked the Second Circuit Court of Appeals to remove or amend the prior authorization provision
“The pre-approval provision in the Consent Decree is considered a prior restriction on speech that violates the First Amendment,” Spiro wrote. “It prohibits future lawful speech on a range of subjects without authorization.”
Additionally, Musk’s speech was tempered by threats of SEC investigation and prosecution for contempt of court, the brief said.
The whole dispute stems from an October 2018 agreement with the SEC that Musk signed. He and Tesla agreed to pay $20 million in fines over Musk’s tweet that “funding was secured” to take Tesla private for $420 per share.
Funding was far from complete and the electric vehicle company remains publicly traded, but Tesla’s stock price skyrocketed. The settlement specified governance changes, including Musk’s removal as CEO, as well as the pre-approval of his tweets.
In April, US District Judge Lewis Liman in New York rejected Musk’s offer to overturn the settlement he had signed with the SEC. He also denied a request to quash a subpoena from Musk for information about possible settlement violations.
Limon’s ruling states that Musk created the tweets without prior approval, but the judge later wrote that he did not plan to rule on the matter.
The SEC declined to comment Wednesday.
In the court filing, Spiro said that Musk’s waiver of his First Amendment rights by settlement was not voluntary because Musk had no way of knowing how far-reaching it was. “The provision applies to future statements about circumstances that no one could have foreseen in advance,” he wrote.
Musk, he said, faces constant danger that the SEC will disagree with his interpretation of what he can say. Musk also approved the deal when Tesla was a smaller company and the SEC action could have jeopardized its funding.
“The SEC has continually investigated Mr. Musk’s speech, using nebulous interpretations of the consent order that appear to be aimed at containing and chilling his future speech, all in relation to the speech unrelated to the 2018 tweet, for the SEC initiated this action,” Spiro wrote.
Tesla is the most valuable automaker in the world today and Musk is the richest person in the world.
Liman ruled that Musk’s claim that commercial coercion prompted him to sign the settlement was “completely unconvincing.”
While Musk feared that litigation with the SEC would bankrupt Tesla financially, “that provides no basis for him to get out of the judgment, which he voluntarily signed,” Liman wrote.
The judge also said that Musk’s argument that the SEC used the settlement order to harass Musk and open an investigation was “baseless.”
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