Musk appeals ruling that upheld securities fraud settlement
Detroit — Tesla CEO Elon Musk is appealing a federal court ruling that upheld a securities fraud settlement over Musk's tweets claiming that he had the funding to take Tesla private in 2018.
Musk's lawyer Alex Spiro filed a notice of appeal Wednesday with the federal appeals court in Manhattan. No grounds were stated, and a full filing with the Second Circuit Court of Appeals is expected later.
In April, U.S. District Judge Lewis Liman rejected Musk’s bid to throw the settlement that Musk signed with the Securities and Exchange Commission.
He also denied a motion to nullify a subpoena of Musk seeking information about possible violations of the settlement.
The settlement required that Musk's tweets be approved by a Tesla attorney before being published. The SEC is investigating whether Musk violated the settlement with tweets last November asking Twitter followers if he should sell 10% of his Tesla stock.
Limon’s ruling said that Musk made the tweets without getting pre-approval, but the judge later wrote that he didn't mean to pass judgment on that issue.
The whole dispute stems from an October 2018 agreement with the SEC that Musk signed. He and Tesla each agreed to pay $20 million in civil fines over Musk’s tweets about having the “funding secured” to take Tesla private at $420 per share.
The funding was far from locked up, and the electric vehicle company remains public, but Tesla’s stock price jumped. The settlement specified governance changes, including Musk’s ouster as board chairman, as well as pre-approval of his tweets.
Limon’s ruling cleared the way for the SEC to seek a court order enforcing the subpoena, and for an investigation into another possible violation of the settlement by Musk.
Spiro contended the SEC is using the settlement and “near limitless resources” to chill Musk’s speech. He wrote in court documents that Musk signed the settlement when Tesla was a less mature company and SEC action jeopardized the company’s financing at a critical time.
He also alleged that the subpoena from the SEC is illegal, and that the agency can’t take action about Musk’s tweets without court authorization.
But in a 22-page ruling, Liman wrote that Musk’s claim that economic duress caused him to sign the settlement is “wholly unpersuasive.”
Even if Musk was worried that litigation with the SEC would ruin Tesla financially, “that does not establish a basis for him to get out of the judgment he voluntarily signed,” Liman wrote.
The judge also said the argument that the SEC had used the settlement order to harass Musk and launch investigations was “meritless.”