NEW YORK: Elon Musk may not back out of a settlement with securities regulators that was reached after his 2018 tweets that claimed he had secured funding to take Tesla private could lead to the electric vehicle maker’s demise. The stock price jumped and trading was temporary. The pause came, an appeals court ruled Monday.
The summary order by the Second US Circuit Court of Appeals in Manhattan was issued just days after a three-judge panel heard arguments from attorneys in the case.
Musk challenged a lower court judge’s ruling last year that required him to comply with the deal on the grounds that circumstances had changed and because the decree contained “prior restraint,” which Musk argued violates the First Amendment. infringed.
The settlement with the Securities and Exchange Commission required that his tweets be first approved by a Tesla attorney. It also called for Musk and Tesla to pay civil penalties over tweets in which Musk said he had “funds secured” to take Tesla private at $420 per share.
Funding was not secured and Tesla remains public.
In its decision, the Second Circuit said that “there is no evidence to support Musk’s contention that the SEC used the consent decree to conduct a bad faith investigation of his protected speech.” ”
Instead, it said, the SEC had opened “just three inquiries into Musk’s tweets since 2018” and that each of the challenged tweets “violated the terms of the consent decree.”
The appeals court also rejected Musk’s prior restraint argument, stating that parties entering into consent can voluntarily waive their First Amendment and other rights.
Lawyers in the case did not immediately respond to messages seeking comment.
The SEC was investigating whether a November 2021 tweet by the Tesla CEO asking Twitter followers whether they should sell 10% of their Tesla stock violated an October 2018 agreement that Musk signed on after the SEC took an enforcement action against him alleging that his tweets violated antifraud in private. Provisions of securities laws.
In a written ruling in April 2022, Judge Lewis Lymon said Musk sent the tweets without obtaining prior approval.
Musk’s deal with the SEC fined Musk and Tesla $20 million over Musk’s tweets about securing funding to take Tesla private. Funding was not secured but Tesla’s stock price jumped in response to the tweet and trading in the shares was subsequently halted.
