DETROIT (AP) — The U.S. Securities and Exchange Commission is denying allegations that it violated Elon Musk’s free speech rights by trying to enforce a 2018 fraudulent securities settlement.
The commission, in an appeal brief filed late Thursday, said Musk, Tesla’s chief executive, waived his First Amendment rights by agreeing to the settlement and amendments. He also rejected Musk’s argument to cancel the deal because he signed it under financial duress and didn’t understand it.
And the SEC argued that doing its job in the interests of shareholders and markets outweighed Musk’s interest in being able to tweet about Tesla without Tesla’s approval.
“Musk’s deal protects investors by ensuring that the information the public uses to make decisions about Tesla securities is accurate and consistent with what Tesla reports,” the agency’s brief said.
The dispute stems from an October 2018 settlement with the SEC that Musk signed regarding his Twitter statements, which Musk bought this year for $44 billion.
Musk 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 then surged. The stock is now trading around $122. The settlement specified governance changes, including the ousting of Musk as chairman of the board, as well as the prior approval of his tweets by a Tesla lawyer.
In April, U.S. District Judge Lewis Liman in New York rejected Musk’s bid to reject the settlement. He also denied a motion to quash a subpoena from Musk seeking information about possible violations.
Limon’s ruling said Musk made the tweets without obtaining prior approval, but the judge later wrote that he did not intend to pass judgment on the matter.
In his filing with the Court of Appeals for the Second Circuit, Musk’s attorney Alex Spiro argued that the SEC is unlawfully muzzling the Tesla CEO, violating his free speech rights by continually trying to enforce the rule.
Musk’s appeal brief filed in September says the provision requiring prior approval before tweeting about the electric car company is an “unlawful government-imposed muzzle on Mr. Musk’s speech before he be pronounced.
But the SEC said in its response that Musk “knowingly and voluntarily waived any First Amendment rights” by signing the settlement.
“Musk suggests his waiver was somehow invalid, but it’s hard to believe the Tesla CEO didn’t understand the agreements he negotiated and signed,” the SEC wrote.
The settlement, the SEC wrote, does not prevent Musk from tweeting about Tesla or other matters, and it does not give the court or the SEC the ability to review his tweets before publication. Rather, it required him to adhere to Tesla’s policies regarding the monitoring of Tesla-related material communications. It had no bearing on tweets or other communications unrelated to Tesla,” the SEC wrote.
The SEC is investigating whether Musk violated regulations with tweets in November 2021 asking Twitter followers if he should sell 10% of his Tesla stock.
“The possibility that the commission would continue to assess Musk’s disclosures — and his compliance with Tesla’s controls — was not unanticipated,” the SEC wrote.
In his appeal brief, Musk’s attorney, Alex Spiro, argues that the SEC continually investigates Musk for matters not covered by the settlement. She is asking the court to remove or modify the pre-approval provision.
Additionally, Musk’s speech is chilled by the threat of SEC investigations and contempt of court suits, according to the brief.
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