SpaceX owner and Tesla CEO Elon Musk speaks during a conversation with renowned game designer Todd Howard (not pictured) at the E3 gaming conference in Los Angeles, California, June 13, 2019.
Mike Blake | Reuters
Tesla CEO Elon Musk lost an appeal in 2018 to withdraw parts of a consent decree he and the automaker entered into with the Securities and Exchange Commission to settle civil securities fraud charges.
Monday’s ruling by a federal appeals court affirms an earlier decision by the U.S. District Court for the Southern District of New York, which issued an initial denial.
Musk has been in litigation with the SEC for years, which was amended in 2019 after the SEC accused Musk of making “false and misleading” statements in his August 2018 “financial security” tweets. The Tesla CEO said he had found a buyer for the automaker at $420 a share, which a federal judge later found to be false.
Tesla required a “pre-authorization” agreement for Musk’s tweets containing information, and that extended to “certain senior executives,” according to the ruling.
A February letter from Musk attorney Alex Spiro called the terms of the consent decree, as amended in 2019, an “unconstitutional” violation of his free speech rights.
But the U.S. Court of Appeals for the Second Circuit rejected those claims, writing that “there is no evidence to support Musk’s contention that the SEC consent decree was conducted in bad faith and harassed his protected speech.”
The court noted that the SEC has opened “three investigations” into his tweets since 2018: his “financially protected” tweet, a tweet misrepresenting Tesla’s annual production numbers, and a Twitter poll where Musk proposed selling 10% of his Tesla shares. , according to court filings.
Instead of “bad faith,” the court wrote, “Each tweet clearly violated the terms of the consent decree.”
Musk’s lawyers made an argument under Rule 60(b), which allows a party to reopen their case if the law or situation has changed substantially. Musk’s legal team argued that the SEC’s enforcement methods made compliance “significantly more stringent.”
But the court rejected that argument as well, saying Musk should consult with Tesla’s general counsel or an in-house defense attorney.
Musk’s Twitter activity has come under scrutiny from the SEC and shareholders. A securities fraud investigation in February found Musk “irresponsible” for his “financially protected” tweets. Musk is fending off a lawsuit related to the public promotion of cryptocurrency Dakai.
The court added that if Musk was concerned about SEC oversight of his “right to tweet without even limited internal oversight,” he could have defended himself against the SEC’s charges or negotiated a different settlement. “But he is chose It should not be done,” the court insisted.
“Having made that choice,” the court concluded, Musk’s team “could not argue that the final judgment should be reopened in parallel because he has now changed his mind.”
“We will seek further review and continue to focus on the government’s core issue in the speech,” Musk’s lawyer, Spiro, said in a statement to CNBC.
Read the judgment below: