An appeals court ruled on Monday that Elon Musk cannot back out of a deal he struck with securities authorities following his tweets in 2018 that said he had secured funds to take Tesla private, which caused the electric vehicle manufacturer’s share price to soar and briefly halted trade.
Just days after a three-judge panel heard the case’s legal arguments, the 2nd U.S. Circuit Court of Appeals in Manhattan issued the summary order.
Due to a change in circumstances and the fact that the order involves a “prior restraint” that Musk claims violates the First Amendment, Musk had appealed a lower court judge’s decision requiring him to comply by the agreement last year.
He had to get a Tesla lawyer’s permission before posting anything on Twitter as part of the Securities and Exchange Commission settlement. Additionally, it demanded that Musk and Tesla pay civil penalties for Musk’s tweets in which he claimed to have “funding secured” for a $420 per share takeover of Tesla.
Tesla remains publicly traded because the funding couldn’t be secured.
The 2nd Circuit stated in its decision that there was “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 claimed that the SEC had initiated “just three inquiries into Musk’s tweets since 2018” and that each questioned post “plausibly violated the terms of the consent decree.”
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Messages seeking comment from the case’s attorneys did not immediately receive a response.
The Tesla CEO’s November 2021 tweets asking Twitter followers if he should sell 10% of his Tesla stock may have violated an enforcement order Musk signed in October 2018 after the SEC filed an enforcement action against him on the grounds that his tweets about going private violated securities laws’ antifraud provisions. The SEC was looking into whether these tweets were in violation of the settlement.
Judge Lewis Limon declared in writing in April 2022 that Musk sent the tweets without first obtaining permission.
According to the agreement Musk reached with the SEC, Musk and Tesla would each pay $20 million in penalty for tweets Musk made about having funds in place to take Tesla private. Despite the fact that the funding could not be obtained, Tesla’s stock price increased as a result of the tweets, and trading in the shares was later suspended.