Elon Musk lost another bid to end a 2018 settlement with the U.S. Securities and Exchange Commission that requires oversight of some of his Tesla-related tweets.
The 2nd U.S. Circuit Court of Appeals in Manhattan rejected Musk’s argument that the consent decree reached in 2018 is a “prior restraint” on his speech. Musk, who is the majority shareholder and CEO of Tesla, bought Twitter in October 2022.
“Had Musk wished to preserve his right to tweet without even limited internal oversight concerning certain Tesla-related topics, he had “the right to litigate and defend against the [SEC’s] charges” or to negotiate a different agreement — but he chose not to do so,” the three-judge court panel ruled Monday.
The Twitter sitter — a Tesla lawyer who is supposed to review some of Musk’s company-related tweets — is one of the requirements in an SEC securities fraud settlement agreement that stemmed from Musk’s now infamous “funding secured” tweet. The SEC alleged in a complaint filed in September 2018 that Musk lied when he tweeted on August 7 that he had “funding secured” for a private takeover of the company at $420 per share.
Under the settlement, Musk agreed to step down as chairman of Tesla and pay a $20 million fine. Tesla also agreed to pay a separate $20 million penalty. The SEC said the charge and fine against Tesla is for failing to require disclosure controls and procedures relating to Musk’s tweets.
The settlement didn’t end the issue with Musk’s tweets. The SEC later took issue with a Musk tweet that posted previously unknown material information that Tesla would produce “around” 500,000 cars this year. He corrected himself hours later to clarify that he meant the company would be producing at an annualized rate of 500,000 vehicles by year-end.
The SEC sought to hold him in contempt for violating the 2018 agreement. A judge in that dispute required Tesla, Musk and the SEC to work out their differences and come to a new resolution. An agreement was reached in April 2019 that gave Musk freedom to use Twitter — within certain limitations — without fear of being held in contempt for violating an earlier court order.
Musk can tweet as he wishes except when it’s about certain events or financial milestones. In those cases, Musk must seek pre-approval from a securities lawyer, according to the agreement filed with Manhattan federal court.
In 2022, Musk’s lawyers made a motion to end the 2018 consent decree over allegations that the SEC had misused it to “launch endless, boundless investigation” of Musk’s speech and intrudes on his First Amendment right to free speech.
U.S. District Judge Lewis Liman denied the motion and the settlement agreement stood. Lawyers appealed the ruling, sending the issue to the 2nd U.S. Circuit Court of Appeals.