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Is the SEC restricting Elon Musk’s right to free speech when he tweets about Tesla?

The Securities and Exchange Commission of the United States is denying allegations that it is infringing on Elon Musk’s free speech rights by attempting to enforce a 2018 securities fraud settlement.

In an appeals brief filed late Thursday, the commission stated that Musk, Tesla’s CEO, waived his First Amendment rights by agreeing to the settlement and amendments. It also rejected Musk’s argument that the agreement should be scrapped because he signed it under duress and didn’t understand it.

The SEC also argued that doing its job in the best interests of shareholders and markets outweighed Musk’s desire to be able to tweet about Tesla without Tesla’s permission.

“Musk’s agreement protects investors by ensuring that the information used by the public to make decisions about Tesla securities is accurate and consistent with what Tesla reports,” according to the agency’s brief.

The dispute stems from an agreement Musk signed with the SEC in October 2018 regarding his statements on Twitter, which Musk purchased this year for $44 billion.

Musk and Tesla agreed to pay $20 million in civil fines in connection with Musk’s tweets about having “funding secured” to take Tesla private at $420 per share.

The funding was far from secured, and the electric vehicle company remained publicly traded, but Tesla’s stock price then skyrocketed. The stock is currently trading around $122. The agreement called for governance changes, including Musk’s removal as board chairman and pre-approval of his tweets by a Tesla lawyer.

Musk’s bid to overturn the settlement was rejected by U.S. District Judge Lewis Liman in New York in April. He also denied a motion to strike Musk’s subpoena for information on potential violations.

According to Limon’s ruling, Musk made the tweets without prior approval, but the judge later wrote that he didn’t mean to pass judgement on that issue.

Musk’s lawyer, Alex Spiro, argued in a filing with the Second Circuit Court of Appeals that the SEC is unlawfully muzzling the Tesla CEO, violating his free speech rights by repeatedly attempting to enforce the settlement.

According to Musk’s September appeal brief, the requirement for prior approval before tweeting about the electric car company is an illegal “government-imposed muzzle on Mr. Musk’s speech before it is made.”

However, in its response, the SEC stated that Musk “knowingly and voluntarily waived any First Amendment rights” by signing the settlement.

“Musk suggests that his waiver was invalid in some way, but it strains credulity to believe that Tesla’s CEO did not understand the agreements he negotiated and signed,” the SEC wrote.

The settlement, according to the SEC, does not prevent Musk from tweeting about Tesla or other matters, nor does it put the court or the SEC in a position to review his tweets before they are published. “Rather, it required him to adhere to Tesla’s policies regarding oversight of material Tesla-related communications. It had no bearing on tweets or other non-Tesla communications,” the SEC wrote.

The SEC is investigating whether Musk violated the settlement agreement by asking Twitter followers in November 2021 if he should sell 10% of his Tesla stock.

“It was hardly unexpected that the Commission would continue to evaluate Musk’s disclosures – and his compliance with Tesla’s controls,” the SEC wrote.

Musk attorney Alex Spiro claims in his appeal brief that the SEC is constantly investigating Musk for topics not covered by the settlement. It requests that the prior approval provision be struck or modified by the court.

Furthermore, the threat of SEC investigations and prosecution for contempt of court chills Musk’s speech, according to the brief.

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