Home Markets SEC rejects Musk’s attempt to get out of “secured financing” settlement.

SEC rejects Musk’s attempt to get out of “secured financing” settlement.

by SuperiorInvest

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

Marlena Sloss | Bloomberg | Getty Images

The SEC argued in a letter to the US 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 the earlier settlement agreement between them is fully constitutional and valid.

Now a centenarian, Musk tweeted in 2018 that he had “financing secured” to take his electric vehicle company private for $420 a share, and that “investor support” for such a deal was “confirmed.” Tesla trading halted after his tweets, and the automaker’s stock price 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 in 2019. As part of the settlement, Tesla and Musk agreed to pay $20 million in fines, and Musk agreed to relinquish his role as Tesla chairman for three years.

Among other things, Musk agreed to the colloquial “Twitter sitter.” He was supposed to work with Tesla’s securities lawyer to review and approve his tweets before posting them in any case where they might contain material business information about the company.

After they struck that deal, Musk repeatedly said he disrespected the Securities and Exchange Commission and suggested in a series of interviews and press statements that no one checked his tweets before publishing them.

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

With the appeal in the Second Circuit, Musk seeks to expand at least some of the terms of the earlier SEC settlement agreement.

Earlier this week Spiro sent a letter to that New York court, arguing that the appeal should take into account a jury verdict in a separate shareholder class action trial that recently ended in federal court in San Francisco. During the shareholder class action lawsuit, Spiro and Musk convinced jurors that the Tesla CEO did not violate certain securities laws with his tweets in 2018.

In its response this week, the SEC argued that “Musk waived his opportunity to test the Commission’s allegations in court when he voluntarily agreed (twice) to a consent judgment.”

They also argue that the San Francisco verdict “says nothing of the continuing public interest in the negotiated settlement term, which does not prevent Musk from accurately tweeting about Tesla or other topics, but rather requires Tesla to review Musk’s Tesla-related communications, including through Musk Twitter – the communication channel designated by Tesla for publication.”

SEC lawyers also questioned whether there was any legal basis for considering canceling the settlement all these years later.

Oral argument for the appeal is scheduled for some time this spring, but a final date has not been set.

Read the full letter here:

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