Tesla boss Elon Musk formally asks a US judge to terminate the 2018 agreement with the SEC allowing lawyers to vet some of his tweets
Tesla CEO Elon Musk has asked a US federal judge to terminate his 2018 agreement with the US securities regulator, that requires some of his tweets to be vetted by a lawyer.
Musk also asked the judge to block a US Securities and Exchange Commission (SEC) subpoena requesting records of pre-approval of a Twitter poll he conducted in November on potentially selling some of his stock, the Guardian reported.
It comes after Musk and Tesla publicly accused the SEC last month of ‘unrelenting harassment’ in a New York courtroom.
The SEC responded to US District Judge Alison Nathan in Manhattan and argued that Tesla was not following proper procedures.
Shortely after that, it emerged that the SEC was investigating Elon Musk and his brother Kimbal Musk over recent stock sales.
That investigation began last year after Kimbal Musk sold Tesla shares valued at $108 million, one day before Elon Musk had polled Twitter users, asking whether he should offload 10 percent of his stake in Tesla.
The users voted yes and Musk began selling tranches of shares.
Kimbal Musk did not know about the Twitter poll ahead of it, Elon Musk told the Financial Times in an email, adding that his lawyers were “aware” of the poll.
Judge Alison Nathan presides over a 2018 SEC settlement between Tesla and Elon Musk.
The need for the agreement dates back to August 2018, when Elon Musk unexpectedly tweeted that he was considering taking Tesla private and that he had secured funding to do so.
Tesla stock then went into a period of unusual volatility and the privatisation deal never materialised.
As a result, Musk was almost immediately hit with two lawsuits which alleged that Musk’s tweets were fraudulent effort to attack short sellers.
A further lawsuit was added last November, when investment bank JPMorgan Chase also sued Tesla for $162 million, alleging Elon Musk’s privatisation tweet in 2018 cost it millions of dollars.
Those privatisation tweets brought Musk to the attention of the SEC, which accused Musk of securities fraud, and alleged he made a series of “false and misleading” tweets about potentially taking Tesla private.
Indeed, the SEC sought to ban Elon Musk from acting as an officer or director of a publicly traded company.
But in the end, the US financial regulator forced Musk to step down as chairman of Tesla and pay $20m in penalties.
In addition, Tesla itself also had to pay a $20 million penalty.
Musk however was allowed to retain the CEO role.
As part of that deal, Musk had to submit any public statements (including tweets) about the company’s finances to vetting by its legal counsel before publishing them.
Last June the SEC also notified Tesla that two of Musk’s tweets from 2019 and 2020 – one about Tesla’s solar roof production volumes and one about the company’s stock price – hadn’t received the required pre-approval.
Against this backdrop, the Guardian has now reported that Musk has officially asked for the 2018 agreement allowing for oversight of company-related tweets to be scrapped.
“The SEC’s pursuit of Mr Musk has crossed the line into harassment, which is quintessential bad faith,” Musk’s lawyers wrote on Tuesday to Judge Alison Nathan.
Musk’s lawyers said the 2018 consent decree resolving SEC securities fraud charges should not allow “roving and unbounded investigations” into the Tesla CEO, while impeding his constitutional right to free speech.
But legal experts doubt that Musk will succeed.
“The SEC clearly has authority to enforce a consent decree issued by a federal court without having to conduct a new investigation,” Urska Velikonja, a law professor at Georgetown University Law Center was quoted by the Guardian as saying.
“Apart from concerns that the consent decree is overbroad and difficult to enforce, which seem plausible, Musk’s other legal arguments are an exercise in legal silliness,” she added.
It is fair to say that Musk has a fractious relationship with the US financial watchdog, and he did not exactly endear himself to the SEC after he publicly attacked the watchdog on multiple occasions.
In October 2018 for example Musk tweeted that the US agency was the “shortseller enrichment commission.”
Then in December 2018 Musk publicly admitted that he had “no respect” for the SEC.
Worse was to come in July 2020 when Musk tweeted:
SEC, three letter acronym, middle word is Elon’s
— Elon Musk (@elonmusk) July 2, 2020
And the feeling is mutual, with some federal officials feeling that Musk got away lightly in the SEC’s agreement with Tesla.
In May 2019 SEC commissioner Robert Jackson made a rare public statement, stating he did not support the agreement reached between Musk and the SEC – citing Musk’s conduct.