Elon Musk's attorney argues in a court filing that the U.S. Securities and Exchange Commission is trying to stifle Musk's free speech in violation of a 2018 settlement for securities fraud.
This brief was sent to the federal appeals court in Manhattan late on Tuesday to back Musk's appeal of a lower court's April decision to preserve the settlement with the Securities and Exchange Commission.
An objectionable government-imposed gag on Mr. Musk's speech before it is produced is raised in the brief in regards to a condition in the settlement that would require Musk to acquire prior clearance before tweeting about the electric car startup.
A Tesla attorney had to review and approve all of his tweets before they could be sent out, per the terms of the deal. In tweets from last November, Musk asked his followers if he should sell 10 percent of his Tesla stock, and the SEC is now looking into whether or not this constituted a violation of the settlement.
In the brief, however, Musk's lawyer Alex Spiro claims that the SEC is still looking into allegations against his client that were not part of the deal. A petition to the U.S. Court of Appeals for the Second Circuit is filed, seeking to have the clause requiring prior permission struck or amended.
According to what Spiro wrote, the pre-approval clause in the consent decree constitutes a prior constraint on communication that violates the First Amendment. Future protected expression on a variety of themes is prohibited unless preapproved.
The brief continued by saying that Musk's free speech is being stifled by the possibility of SEC probes and contempt of court charges.
There is a disagreement because Musk broke a deal he made with the SEC in October of 2018. After Musk tweeted that he had the financing secured to take Tesla private at $420 per share, he and the company settled civil charges by paying $20 million each.
Tesla's stock price increased even though the business has yet to secure its funding and is still traded on public markets. A number of governance measures, such as Musk's removal as board chairman and the need that his tweets be reviewed in advance, were outlined in the settlement.
Musk failed in his attempt to have the deal he made with the SEC thrown out by U.S. District Judge Lewis Liman in New York in April. A subpoena sent to Musk for information on potential violations of the settlement was also upheld after a challenge was filed to have it thrown out.
Limon ruled that Musk made the comments without seeking pre-approval, but then clarified that he didn't mean to pronounce judgment on that point.
On Wednesday, the SEC declined to comment.
Mr. Musk's abandonment of his First Amendment rights in the settlement, Spiro argues, was not voluntary because Mr. Musk could not have known the full extent of the deal's impact on his rights. The provision extends to future speech regarding events no one can anticipate in advance, he wrote.
He claimed that Musk lives in constant fear of the SEC taking issue with his view of what he can and cannot say. Musk also approved of the deal back when Tesla was a much smaller firm and the SEC lawsuit may have compromised the company's ability to secure finance.
Spiro argued that the SEC's actions were unrelated to the 2018 tweet that prompted the case. The SEC has continued constant inquiries into Mr. Musk's speech, adopting murky interpretations of the consent decree presumably geared to constrain and freeze his future speech, he said.
Musk, who founded Tesla, is now the world's richest man, since the company has become the most valuable automobile in the world.
Liman found Musk's argument that he was forced to sign the deal because of financial hardship to be wholly unpersuasive.
To paraphrase what Liman said, even if Musk was concerned that SEC lawsuit might bankrupt Tesla, that does not provide a foundation for him to get out of the judgment he willingly signed.
A judge has ruled that Musk's claims that the SEC is using the compensation order to harass and investigate him are "meritless."
The preceding is a summary of an article that originally appeared on Headline Wealth.