Tesla Chief Executive Elon Musk on Tuesday asked a federal judge to terminate his 2018 agreement with the top US securities regulator that required some of his tweets to be verified by a lawyer.
Musk also asked the judge to block a subpoena from the US Securities and Exchange Commission (SEC) requesting pre-approval records of a Twitter poll he conducted in November on potentially selling some of his stock was.
Musk’s lawyers wrote to U.S. District Judge Alison Nathan in Manhattan, “The SEC’s finding of Mr. Musk has exceeded the threshold of harassment, which is quintessentially bad faith.”
Musk’s lawyers said a 2018 consent decree settling the SEC securities fraud allegations should not allow a “roaring and unbound investigation” into a vocal government critic, while inhibiting his constitutional right to free speech. Legal analysts said an attempt to overturn Musk’s consent decree could fail.
“The SEC clearly has the authority to enforce a consent decree issued by a federal court without conducting a new investigation,” said Urska Velikonza, a law professor at Georgetown University Law Center.
“Aside from concerns that the consent decree is broad and difficult to enforce, which seems plausible, Musk’s other legal arguments are an exercise in legal absurdity,” she said.
In early November, Musk posted on Twitter that he would sell 10 percent of his Tesla stake if users approved it.
The majority did, and the survey sent Tesla shares into a recession. Musk has since sold stock worth $16.4 billion (about Rs 125947.9 crore).
The tweet rekindled the question of whether Musk had complied with his SEC agreement to obtain approval from Tesla’s attorney before releasing a written communication about the information material to his company or its shareholders.
Tesla said Tuesday that Musk’s tweet on the stock sale is “the behavior the SEC should encourage: a CEO’s transparency with the public and shareholders about the proposed stock sale.”
According to Stephen Crimins, a partner at Murphy & McGonigal in New York City, Musk faces a “real uphill battle.”
“Courts generally give the SEC a lot of leeway to enforce subpoenas,” said Crimins, who is not involved with the Musk case.
“Judges usually take the view that if you agree to a consent decree, you’re stuck with it. Saying you don’t like the deal isn’t going to get you out of it.” The SEC did not immediately respond to a request for comment.
The regulator sued Musk after he tweeted in August 2018 that he had “funding secured” to potentially take his electric-car company private at $420 (about Rs 32,200) per share. In fact, a purchase was not close.
Tesla and Musk each agreed to pay $20 million (about Rs 153.59 crore) in civil fines and let lawyers pre-view some of Musk’s communications, including Twitter posts that affected Tesla’s stock price. can do. Musk also stepped down from Tesla’s presidency.
“I never lied to shareholders,” Musk told Nathan in a separate court filing. “I entered into a consent decree for the existence of Tesla for the sake of its shareholders.”
In his filing, Musk said he was “forced” to sign the decree, citing “incredible regulatory pressure” from the SEC and that “the SEC’s actions stood to endanger the company’s funding.”
He said Tesla’s investor relations teams had said at the time that many large shareholders “could hand over their ownership in Tesla — significantly affecting Tesla’s financing — if the matter was not resolved expeditiously.”
The company on Tuesday accused the SEC of taking advantage of the consent decree to “micro-manage Mr Musk’s Twitter activity” and retaliate against him for criticizing the agency.
Musk has ridiculed the agency in his tweets since the 2018 investigation: “SEC, the three-letter abbreviation, middle of the word Elon.”
He also tweeted in 2020 that Tesla would make short pants in bright red satin with gold trim and send them to the SEC, which he called the “Shortseller Promotion Commission.”
© Thomson Reuters 2022