The SEC’s warning to Tesla CEO Elon Musk comes as the company experiences a tumultuous few weeks. The Los Angeles Times reports that Tesla is facing increasing scrutiny over its production goals, shareholder value, and salesforce size. Amidst all of this turmoil, Musk has continued to tweet about the company on an hourly basis. In a statement released by the SEC, it was clarified that Musk still needs to get pre-approval from his lawyers before tweeting anyTesla-related information. This is in accordance with Regulation T of the SEC which states: “No person shall make or participate
The SEC’s stance this week in a letter to the U.S. Court of Appeals for the 2nd Circuit in New York argues that the earlier settlement agreement between it and Musk is fully constitutional and valid. This comes after several lawsuits were filed, challenging the validity of Musk’s settlement with the SEC, which was announced in December 2018.
After raising over $7.5 billion in stock and cash, Tesla CEO Elon Musk tweeted that he had “funding secured” to take the company private at a price of $420 per share. However, this announcement raised eyebrows among investors who were not sure if the funding was actually secured. After several weeks of speculation and SEC investigation into whether he committed securities fraud, Musk eventually walked back his claim, admitting that he did not have the necessary funds to take Tesla private.
Musk has been involved in several legal cases in which he was accused of breaking the law. However, he and Tesla were able to settle all of these cases without admitting any wrongdoing, and Musk stepped down as chairman of the company. He also agreed to run most Tesla-related communications by a lawyer before tweeting so that he does not say anything that could affect share price.
The appearance of government muzzle on Elon Musk has been an issue for years and the recent legal filings from his lawyers seem to confirm that. The issue is not new and dates back to when Tesla was facing allegations of fraud. From communicating with potential investors, to making public statements about the company, Musk has been limited in what he can do by the SEC settlement provision. This situation First came to attention in September 2018 when Musk attempted to get rid of it via a motion court but this was later quashed by a federal judge.
Musk’s attorneys argue that the recent verdict in a separate trial should be considered in the appeal because it shows that the stock market believes there was no securities fraud. This could help Musk’s case because it would show that he did not commit any wrongdoing and that he is innocent of all charges.
The decision to not pursue a consent decree against Elon Musk is a clear victory for the entrepreneur and should send a message to other businesses that social media is not an effective tool for promotional purposes. The SEC’s case was weak, and the verdict provided further evidence that settlements designed to punish wrongdoing are often unconstitutional.
When a lawyer files a Brief with the Court, they are generally required to submit any new legal authorities that they may have discovered since filing the brief. If Lawyers discover a new legal authority during briefs preparation that has significant potential to affect the outcome of their case, they may choose to submit a supplemental authority memorandum in order to present this new information directly to the Court. By doing so, Lawyers can maximize their chances of influencing an appellate decision.
Spiro’s argument that a jury verdict in a private securities-fraud action qualifies as “pertinent and significant” authority was rejected by the SEC. The agency argued that Musk waived his opportunity to test the Commission’s allegations at trial when he voluntarily agreed (twice) to a consent judgement.
The SEC argued that the overturned settlement doesn’t address the public interest involved in negotiating a settlement with Musk and doesn’t preclude him from tweeting accurately about Tesla or other topics. The SEC’s lawyers also questioned the legal basis for undoing the settlement years later.
Spiro’s letter has stirred up a lot of interest in the court, with oral arguments for the appeal expected in the spring. While no date has yet been set, it will be interesting to see how the court responds to Spiro’s argument that artificial intelligence should be considered under Title III of the ADA.