Elon Musk still needs a Twitter sitter, judge rules

SpaceX owner and Tesla CEO Elon Musk speaks during a conversation with legendary game designer Todd Howard (not pictured) at the E3 games conference in Los Angeles, Calif., June 13, 2019.

Mike Blake | Reuters

Tesla CEO Elon Musk has lost an appeal to overturn parts of the consent decree he and the automaker issued with the Securities and Exchange Commission to settle civil securities fraud charges in 2018.

The ruling, delivered Monday by a federal appeals court, confirms an earlier decision by the US District Court for the Southern District of New York, which issued the initial denial.

Musk has been suing the SEC for years over the consent decree, which was amended in 2019 after the SEC accused Musk of making “false and misleading” statements in his “funding secured” tweets in August 2018. The Tesla CEO said he had found a buyer. for taking the automaker private at $420 a share, a claim a federal judge later found to be false.

The agreement required Musk’s “pre-approval” of tweets containing informational materials for Tesla, which extended to “certain senior executives,” according to the ruling.

A February letter from Alex Spiro, Musk’s attorney, said the terms of the consent decree, which was amended in 2019, amounted to an “unconstitutional” infringement of his rights to free speech.

But the US Court of Appeals for the Second Circuit rejected those claims, writing that the court found “no evidence to support Musk’s claim that the SEC used the consent decree to commit bad faith, harassing investigations into his protected speech.”

The court noted that the SEC had opened “only three inquiries” in his tweets since 2018: about the “secured financing” tweet, a tweet that missed Tesla’s annual production numbers, and a Twitter poll where Musk suggested selling 10% of Tesla stock. his own. , according to the court’s claim.

Far from being “bad faith,” the court wrote, “each tweet reasonably violated the terms of the consent decree.”

Musk’s attorneys also made an argument under Rule 60(b), which allows a party to reopen their case if the law or situation changes significantly. Musk’s legal team argued that the SEC’s enforcement methods made compliance “significantly more difficult.”

But the court rejected that argument as well, noting that Musk was only required to consult with Tesla’s general counsel or internal securities attorney.

Musk’s Twitter activity has been the subject of interest from both the SEC and shareholders. Musk was found “irresponsible” in a securities fraud trial in February for his “secured financing” tweets. Musk has also been fighting a lawsuit related to the public’s promotion of the cryptocurrency dogecoin.

The court also added that if Musk had concerns about SEC oversight of his “right to tweet without limited internal oversight,” he could have defended himself against the SEC’s charges or negotiated a different settlement. “But he to choose not to do so.”

After making this decision, the court concluded, Musk’s team cannot argue to “collectively reopen a final ruling simply because he has now changed his mind.”

“We will seek further review and continue to draw attention to the important issue of the government’s speech restriction,” Musk’s attorney, Spiro, said in a statement to CNBC.

Read the ruling below: