A lawyer for Tesla and CEO Elon Musk claimed in a court filing today that the US Securities and Exchange Commission is harassing the car company and Musk to “muzzle” his criticism of the government. The three-page letter from lawyer Alex Spiro to US District Judge Alison Nathan in New York said the SEC is “weaponizing” the 2018 settlement in which Tesla and Musk agreed to pay $20 million each in penalties to resolve the SEC’s complaint that “Musk’s misleading tweets” about taking Tesla private caused the stock price to jump “and led to significant market disruption.”
The settlement also required Tesla to impose controls on Musk’s social media statements. Musk had claimed on Twitter that he had “funding secured” to take Tesla private at $420 per share, but the SEC said in a lawsuit that “Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source.”
Today’s letter said:
[The SEC] has been weaponizing the consent decree by using it to try to muzzle and harass Mr. Musk and Tesla, while ignoring its Court-ordered duty to remit the $40 million that it continues to hold while Tesla’s shareholders continue to wait. Worst of all, the SEC seems to be targeting Mr. Musk and Tesla for unrelenting investigation largely because Mr. Musk remains an outspoken critic of the government; the SEC’s outsized efforts seem calculated to chill his exercise of First Amendment rights rather than to enforce generally applicable laws in evenhanded fashion.
Musk, the outspoken critic
The “outspoken critic of the government” line could refer to many Musk statements. Musk has used his Twitter account to criticize the SEC, for example, calling the SEC “the Shortseller Enrichment Commission” in October 2018 and writing in February 2019 that “something is broken with SEC oversight.” A July 2020 Musk tweet read, “SEC, three letter acronym, middle word is Elon’s.”
Musk recently called vaccine mandates an “erosion of freedom,” although he says he and his children are vaccinated against COVID. He also criticized shelter-in-place orders and defied a factory shutdown order early in the pandemic. Today, Musk tweeted a meme comparing Canadian Prime Minister Justin Trudeau to Adolf Hitler and later deleted the tweet.
But it is Musk’s tweets about Tesla’s finances and business that have repeatedly drawn condemnation from the SEC. Tesla said this month in an SEC filing that in November 2021, “the SEC issued a subpoena to us seeking information on our governance processes around compliance with the SEC settlement.”
That followed several instances in which the SEC alleged that Tesla failed to control Musk’s social media pronouncements. In a May 2020 letter to Tesla, the SEC reportedly said the company failed to enforce the settlement requirements “despite repeated violations by Mr. Musk” and that “Tesla has abdicated the duties required of it by the court’s order.”
Fines weren’t distributed to shareholders
The $40 million in fines over Musk’s tweets about Tesla are supposed to be “distributed to harmed investors under a court-approved process,” as the SEC explained in 2018. In today’s letter, Tesla said that “the SEC has failed to comply with its promise to pay Tesla’s shareholders the $40 million it collected as part of the settlement in these cases and that it purports to be holding for them. Instead, it has been devoting its formidable resources to endless, unfounded investigations into Mr. Musk and Tesla.”
Tesla asked the court to “schedule a conference to address why the SEC has failed to distribute these funds to shareholders but has chosen to spend its energy and resources investigating Mr. Musk’s and Tesla’s compliance with the consent decree by issuing subpoenas unilaterally, without Court approval.”
Tesla and Musk agreed to the 2018 consent decree in part because the $40 million would be distributed to shareholders and they “understood that settling with the SEC would at last end the SEC’s harassment and, importantly, make this Court, and not the SEC alone, the monitor over any perceived compliance issues going forward. But the SEC has broken its promises,” the letter claimed.
Although the SEC appointed a tax administrator and distribution agent for the funds, the agency “has yet to announce anything like a distribution plan. As such, the SEC has taken nearly twenty times longer than its specified outer limit,” Tesla said.
https://arstechnica.com/?p=1835047