US appeals court orders Musk to abide by SEC settlement on tweets

Elon Musk cannot back out of a settlement with securities regulators that was reached after his 2018 tweets claiming he had secured funding to take Tesla private caused the electric vehicle maker’s share price to jump and led to a temporary halt in trading, an appeals court has ruled.

That settlement with the Securities and Exchange Commission (SEC) required Musk to obtain prior approval from a Tesla lawyer for some of his tweets.

Monday’s summary order by the United States Second Circuit Court of Appeals in Manhattan was released days after a three-judge panel heard lawyers’ arguments in the case.

The order also called for Musk and Tesla to pay civil fines over the tweets, in which Musk had said he had “funding secured” to take Tesla private at $420 per share.

The funding wasn’t secured, and Tesla remains public.

Musk had challenged a lower court judge’s ruling last year requiring him to abide by the deal on the grounds that circumstances have changed and because the decree contains a “prior restraint” that Musk contends violates the First Amendment.

In seeking to overturn the pre-approval mandate, Musk’s lawyers called the restriction a “government-imposed muzzle” that chilled his speech on a wide range of topics.

The appeals court said Musk could have negotiated a settlement that preserved his unfettered right to tweet but chose not to and had no right to revisit the matter “because he has now changed his mind”.

In its ruling, the appeals court said it saw “no evidence to support Musk’s contention that the SEC has used the consent decree to conduct bad-faith, harassing investigations of his protected speech”.

Instead, it said, the SEC had opened “just three inquiries into Musk’s tweets since 2018” and each challenged tweet “plausibly violated the terms of the consent decree”.

Lawyers in the case did not immediately respond to messages seeking comment.

The SEC was investigating whether the Tesla CEO’s November 2021 tweets asking Twitter followers if he should sell 10 percent of his Tesla stock violated the settlement that Musk signed after the SEC brought an enforcement action against him alleging that his tweets about taking Tesla private violated anti-fraud provisions of securities laws.

In a written ruling in April 2022, Judge Lewis Limon said Musk sent the tweets without getting approval.