Tesla CEO Elon Musk faced a setback as a federal appeals court rejected his appeal to undo certain aspects of the consent decree reached between him, Tesla, and the Securities and Exchange Commission (SEC) in 2018 to settle securities fraud charges. The ruling, in line with the earlier decision by the U.S. District Court for the Southern District of New York, solidifies the requirements of the decree.
Musk has been embroiled in legal disputes with the SEC for years over the consent decree, which was revised in 2019 following allegations that Musk made false statements in his tweets about securing funding for Tesla. The court found that his claim of securing a buyer to take the company private at $420 per share was indeed false.
Under the revised consent decree, Musk is obligated to seek “pre-approval” for tweets that contain material information about Tesla, extending to certain senior executives as well. Musk’s attorney had argued that these terms violated his free-speech rights, but the appeals court dismissed these claims, stating that there was no evidence to support allegations of bad-faith investigations on the part of the SEC.
The court noted that the SEC had only initiated three inquiries into Musk’s tweets since 2018, focusing on the “funding secured” tweet, a misstatement of Tesla’s annual production numbers, and a Twitter poll related to selling Tesla shares. The court concluded that each of these tweets likely violated the terms of the consent decree.
Musk’s legal team also attempted to reopen the case under Rule 60(b), citing substantial changes in the law and enforcement methods by the SEC. However, the court dismissed this argument, emphasizing that Musk’s compliance was not unduly burdensome and required him to consult with Tesla’s general counsel or an in-house securities lawyer.
With this ruling, Musk remains bound by the terms of the consent decree. His Twitter activity, which has attracted both SEC and shareholder attention in the past, will continue to be subject to scrutiny. While Musk’s attorney intends to seek further review, the court’s decision highlights the importance of understanding the limitations imposed by government regulations on public figures’ speech.
