Elon Musk has asked a federal judge to terminate his 2018 agreement with the largest US securities regulator that required some of his tweets to be examined by an attorney.
Musk also asked the judge to block a subpoena from the U.S. Securities and Exchange Commission (SEC) seeking pre-approval records for Twitter In his November poll about the possibility of selling some of his shares.
“The SEC’s prosecution of Mr. Musk has crossed the line into harassment, which is fundamental bad faith,” Musk’s lawyers wrote Tuesday to U.S. District Judge Alison Nathan in Manhattan.
Musk’s lawyers said the 2018 approval decree resolving the SEC’s securities fraud charges should not allow for “unlimited, mobile investigations” of the Tesla CEO, while hampering his constitutional right to free speech.
Legal analysts said Musk’s push to end the approval decree may fail.
“It is clear that the Securities and Exchange Commission has the authority to enforce the approval decree issued by a federal court without the need for a new investigation,” said Urska Velikunga, professor of law at Georgetown University Law Center.
“Aside from concerns that the consent decree is excessive and difficult to implement, which seems reasonable, Musk’s other legal arguments are legally absurd practice,” she added.
In early November, Musk posted on Twitter that he would dump 10% of his stake in Tesla if users agreed to it.
The majority did, and the survey Send Tesla Arrow in stagnation. Musk has since sold $16.4 billion in stock.
The tweet renewed questions about whether Musk complied with his agreement with the Securities and Exchange Commission to obtain approval from Tesla’s attorney before releasing written communications about media materials for his company or its shareholders.
Tesla said Tuesday that Musk’s tweet about the stock sales “is a behavior the SEC should encourage: the CEO’s transparency with the public and shareholders about the proposed stock sale.”
Musk faces a “real uphill battle,” according to Stephen Crimmins, partner at Murphy & McGonigle in New York City.
“Courts generally give the Securities and Exchange Commission a great deal of latitude to enforce subpoenas,” said Crimmens, who is unrelated to Musk’s case.
“Judges generally take the approach that if you agree to the consent decree, you’re stuck with it. Saying you don’t like the deal won’t get you out of it.”
The Securities and Exchange Commission did not immediately respond to a request for comment.
The regulator sued Musk after he tweeted in August 2018 that he had “funded” to privately convert his electric car company at $420 a share.
In fact, the takeover deal was not close.
Tesla and Musk settled by agreeing to pay $20 million in civil fines and allow lawyers to examine some of Musk’s communications in advance, including Twitter posts that could affect Tesla’s stock price. Musk also relinquished the Tesla presidency.
“I’ve never lied to shareholders,” Musk told Nathan in a separate suit. “I entered into a decree of approval for the very survival of Tesla, for the sake of its shareholders.”
In his filing, Musk said he was “forced” to sign the decree, citing “relentless regulatory pressure” from the Securities and Exchange Commission, and since “the SEC’s action would jeopardize the company’s financing.”
He said that Tesla’s investor relations teams said at the time that several major shareholders “could give up their ownership in Tesla – which significantly affects Tesla’s financing – if the issue is not resolved appropriately.”
The company on Tuesday accused the Securities and Exchange Commission of using the approval decree to “manage and retaliate against Mr. Musk’s Twitter activity” for criticizing the agency.
Musk also mocked the agency in his tweets since the 2018 investigation: “SEC, three-letter acronym, middle word is Elon.”
He also tweeted in 2020 that Tesla would make bright red satin shorts with gold edging and send them to the Securities and Exchange Commission, which he called the “Short Shorts Fertilization Commission.”
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