NEW YORK, NEW YORK – MAY 02: Elon Musk attends The 2022 Met Gala Celebrating "In America: An Anthology of Fashion" at The Metropolitan Museum of Art on May 2, 2022 in New York City. (Photo by Dimitrios Kambouris/Getty Images for The Met Museum/Vogue)
Elon Musk's consent decree with the Security and Exchange Commission imposing oversight for potentially market-moving tweets about Tesla doesn't violate the First Amendment, the Second Circuit ruled Monday.
Nearly five years have passed since Musk freely entered into an agreement with the SEC with a provision requiring monitoring over his tweets. He's been trying to wriggle out of the agreement ever since.
In April 2022, U.S. District Judge Lewis Liman — a Donald Trump appointee — told the billionaire Tesla co-founder that he "voluntarily" entered into the agreement and rejected his claim of economic duress.
"Musk cannot now seek to retract the agreement he knowingly and willingly entered by simply bemoaning that he felt like he had to agree to it at the time but now—once the specter of the litigation is a distant memory and his company has become, in his estimation, all but invincible—wishes that he had not," Liman wrote.
In August 2018, Musk told his then-22 million Twitter followers that he could take Tesla private at $420 per share, a price tag widely understood to be an in-joke for cannabis culture. Musk claimed that funding had been secured. Regulators said the tweet was false, alleging that the deal was uncertain and that he hadn't discussed its specific terms with any potential financing partners.
His tweets, the SEC said, caused significant market disruption.
Before filing his appeal, Musk's attorney Alex Spiro defended the tweets that sparked the SEC's litigation.
"Nothing will ever change the truth, which is that Elon Musk was considering taking Tesla private and could have—all that's left some half decade later is remnant litigation which will continue to make that truth clearer and clearer," Spiro told Law&Crime last year.
In a summary order on Monday, the Second Circuit's three-judge panel unanimously rejected Musk's claim that regulators unjustly targeted him for his free speech.
"We see 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," they wrote. "To the contrary, the record indicates that the SEC has opened just three inquiries into Musk's tweets since 2018. The first resulted in the consent decree that is the subject of this appeal."
In 2019 and 2021, the SEC looked into two other tweets by Musk, and the appeals court found these inquiries also were justified.
"Each tweet plausibly violated the terms of the consent decree," the panel found.
Slapping down Musk's claim to have been acting in the public interest, the appeal court said: "If anything, it cuts in the other direction, given the importance of the public's interest in the enforcement of federal securities laws and because '[o]ur Court recognizes a 'strong federal policy favoring the approval and enforcement of consent decrees.'"
The Second Circuit also rejected Musk's characterization of the consent decree as an unlawful "prior restraint" on his speech.
"Parties entering into consent decrees may voluntarily waive their First Amendment and other rights," the order states.
U.S. Circuit Judges Reena Raggi, Debra Ann Livingston, and Maria Araujo Kahn — two George W. Bush appointees and a Joe Biden appointee, respectively — joined the decision.
The SEC's litigation with Musk predated his purchase of Twitter.
Read the order here.
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