Tesla Inc. TSLA 2.46% CEO Elon Musk on Tuesday asked a federal judge to overturn a deal he reached with securities regulators in 2018 that required prior approval for some of his tweets. and Tesla TSLA 2.46% followed the rule.
In a motion filed in Manhattan federal court, Mr. Musk’s lawyers argued that Twitter’s oversight policy had become unworkable while the SEC abused the deal to “round after round of demanding voluminous, costly documents with no sign of easing.”
In a separate document, Mr. Musk also disputed earlier claims by the SEC that he was defrauding investors in 2018, when he tweeted that he was “funded” to privatize Tesla’s TSLA 2.46%. Tesla’s CEO said he felt pressured at the time to settle the SEC’s civil lawsuit and added, “I have never lied to shareholders. I would never lie to shareholders. I have signed a decree agreeing to Tesla’s survival for the sake of its shareholders.”
The CEO of Tesla and SpaceX said in an interview at the WSJ Board of Directors summit that the government should take a more hands-off approach to innovation, adding that rules and regulations are becoming a growing issue that “strengthens the arteries of civilization.”
An SEC spokesperson declined to comment.
Mr. Musk’s request follows the launch of a new SEC investigation into trading between himself and his brother Kimbal Musk. The investigation began last year after the head of Tesla polled Twitter users whether he should get rid of a 10% stake in the electric car maker and vowed to honor the results of the vote. Kimbal Musk sold approximately $108 million worth of Tesla shares the day before Mr. Musk’s tweet.
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In an earlier case — the subject of Mr. Musk’s proposal on Tuesday — the SEC alleged that Mr. Musk misled investors in 2018 with tweets that weren’t true. The regulator’s lawsuit eventually resulted in an unusual agreement that Tesla’s lawyers would pre-clear some of the CEO’s tweets and other public statements.
The two sides never agreed on how the policy should be pursued. The SEC told Tesla in 2019 and 2020 that Mr. Musk has been tweeting about the company’s business without prior authorization. Lawyers for the company and Mr. Musk disputed that the statements fell within the scope of the agreement, which covers only the dissemination of financial, production and management information.
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The 2018 agreement between Mr. Musk and Tesla also required them to pay $20 million each, and Mr. Musk stepped down as chairman. He continues to oppose the SEC, recently tweeting, “I didn’t start the fight, but I will end it.”
Mr. Musk and Tesla are now arguing that the SEC’s attempts to enact a preclearance rule violate Mr. Musk’s free speech rights.
Donna Nagy, a professor of law at Indiana University, said it would be difficult for Mr. Musk and Tesla to convince the court to revoke the previous agreement. A federal appeals court in Manhattan recently denied another SEC defendant’s motion to invalidate his settlement agreement based on his contention that it prevents him from denying the allegations and therefore restricts his right to free speech.
“It’s extremely difficult to convince a federal court to terminate a consent order,” Ms Nagy said. “The required display is very high, and there is very recent precedent in a similar area.”
Alex Spiro, an attorney for Mr. Musk and Tesla, on Tuesday asked the court to strike down part of a November subpoena sent to Mr. Musk that asked for information about whether his polling tweets were pre-screened.
Mr. Spiro argued that the Securities and Exchange Commission cannot continue to investigate Mr. Musk’s tweets without going to U.S. Judge Alison Nathan in Manhattan, who is responsible for enforcing the agreement. The SEC said it had good reason to investigate the tweets, citing rules requiring companies to have policies in place to control how they share information with shareholders.
Court records show that five days before the Twitter poll was launched, Mr. Musk spoke with Tesla’s acting head of legal about a preliminary announcement of his intention to sell the company’s stock.
The November subpoena also requested documents related to Mr. Musk’s sale of Tesla shares or options, Mr. Spiro wrote. The Tesla CEO sold more than $16 billion worth of Tesla shares in November and December after the survey was launched.
“The Securities and Exchange Commission’s vendetta against Mr. Musk must be stopped,” Mr. Spiro wrote.
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