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Elon Musk’s tweets still need lawyer approval, according to the SEC

The SEC says Tesla CEO Elon Musk must obtain lawyer approval before tweeting Tesla-related material.

Last week, the SEC wrote to the U.S. Court of Appeals for the 2nd Circuit in New York, saying that an earlier settlement agreement between the agency and Musk is constitutional and legitimate.

Musk tweeted in 2018 that he had “financing secured” to take Tesla private for $420 per share with investor support. In the weeks that followed, Tesla’s share price fluctuated, prompting an SEC inquiry into Musk’s securities fraud.

Musk and Tesla settled without apologizing. They both paid $20 million in fines, Musk resigned as Tesla chairman, and he promised to run most Tesla-related communications by a lawyer before tweeting to avoid affecting the stock price.

Musk’s lawyers filed a brief with a court of appeals in September 2022 to remove a “government-imposed muzzle” that “inhibit[s] and chill[s] Mr. Musk’s lawful speech.” A federal judge denied Musk’s attempt to terminate the same SEC settlement provision a month earlier.

Musk’s lawyers claimed this week that the appeal should use a recent jury verdict from a separate trial. In early February, a class action lawsuit filed by stockholders who lost money after Musk tweeted “funding secured” was ruled not guilty of securities fraud.

“In light of the jury’s finding that Mr. Musk’s tweets did not violate Rule 10b-5, the SEC lacks support both for the consent decree itself and for its arguments on appeal,” writes Spiro. “The judgment gives further reason why the public interest in avoiding unconstitutional settlements easily subsumes the SEC’s putative investment in the consent decree.”

After filing a brief and before the court makes a decision, lawyers can send additional legal authorities to an appellate court if they find new ones that are directly related to the question on appeal and could change the outcome of the case.

The SEC did not agree with Spiro’s claim that a jury verdict in a private securities fraud case was “relevant and substantial.”The agency claimed Musk “waived his ability to test the Commission’s claims at trial when he willingly consented (twice) to a consent judgment.”

The government maintained that the judgment did not address the public interest in the negotiated settlement and did not prevent Musk from tweeting properly about Tesla or other topics. SEC lawyers questioned the legality of reversing the settlement years later.

The court can accept or reject Spiro’s letter. No date has been scheduled for the appeal’s spring oral argument.

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