SEC Urges Supreme Court To Reject Elon Musk’s First Amendment Appeal

Authored by Melanie Sun via The Epoch Times (emphasis ours),

Attorneys representing the Securities and Exchange Commission (SEC) have urged the Supreme Court not to hear Elon Musk’s appeal of settlement conditions that Mr. Musk says would require that “Americans who settle their cases with the government to ‘consent’ to be gagged for life.”

SpaceX, Twitter, and electric car maker Tesla CEO Elon Musk meets with France’s President at the Elysee presidential palace in Paris on May 15, 2023. (Michel Euler /POOL/AFP via Getty Images)

Elon Musk is challenging the details of a settlement agreement he signed with the SEC requiring him to seek pre-approval for comments about Tesla, of which he is the CEO and former chairman of its board of directors.

He is arguing that his future speech “on matters ranging far beyond the charged violations” cannot be gagged as a condition of settlement by the agency.

However, attorneys for the SEC argue that because the petitioner “concede[d] that his free speech rights do not permit him to engage in speech that is or could be considered fraudulent or otherwise violative of the securities laws” in the district court, this did not preclude him from needing to abide by the settlement conditions to seek pre-approval from Tesla’s own attorneys before petitioner speaks publicly about specified matters related to the company, according to court documents.

“Further review is not warranted,” the government said.

After a social media post about Tesla by Mr. Musk in August 2018 caused “significant market disruption,” both parties agreed that Tesla Inc.’s senior executives would implement policy to require that in-house lawyers pre-approve any public written communications, including social media posts, about the company.

In his post, Mr. Musk had claimed to have “funding secured” to take Tesla private. This sent Tesla shares surging by over six percent. But the SEC sued Mr. Musk, alleging that he had misled shareholders with his remarks, which later did not eventuate.

According to the SEC’s complaint, Tesla violated SEC Rule 13a-15, which requires securities issuers to “maintain disclosure controls and procedures” to “ensure that information required to be disclosed” is properly “recorded, processed, summarised, and reported.”

Multiple future incidents involving Mr. Musk’s Twitter, later X, posts would see the SEC subpoena him on Nov. 6, 2021, over multiple social media posts on Twitter “concerning his potential sale of a large portion of his holdings in Tesla,” in violation of the agreement.

The first of the Nov. 6, 2021, Twitter posts stated: “Much is made lately of unrealized gains being a measure of tax avoidance, so I propose selling 10% of my Tesla stock. Do you support this?” The next post stated that he would “abide by the results of this poll, whichever way it goes.”

Mr. Musk, who is also the owner of X Corp. which purchased and took over Twitter, is challenging the future applicability of his initial agreement with the SEC.

Mr. Musk is seeking relief from the court from a judgment where “applying it prospectively is no longer equitable.”

After his initial challenge was declined by a federal court, Mr. Musk took his case to the 2nd Circuit Court of Appeals, which also rejected his arguments in May last year, propelling Mr. Musk to file with the Supreme Court in December.

The court of appeals observed that in his appeal, Mr. Musk was making a new argument “that any waiver of his First Amendment rights is unenforceable.” But it ruled that because he had “not made that argument before the district court,” the court of appeals deemed the argument based on the unconstitutional-conditions doctrine “forfeited.”

The court therefore never addressed the First Amendment challenging on its merits, court documents say.

On March 22, on behalf of the SEC, Solicitor General for the Department of Justice Elizabeth Prelogar urged the Supreme Court that Mr. Musk’s arguments did not deserve a hearing.

“The court of appeals declined to address petitioner’s unconstitutional-conditions argument, correctly holding that petitioner had forfeited that claim. This Court should not grant certiorari to review an issue that was not properly preserved or passed upon below,” Ms. Prelogar said.

“This court has consistently held that, in resolving litigation, parties may choose to waive even fundamental constitutional rights,” she added.

Mr. Musk argued in his appeal that while he signed the agreement at the time, the terms are in violation of his inalienable First Amendment rights as protected according to the “unconstitutional-conditions doctrine.”

“The notion that an agency may wield its power to decide what parties it regulates may, may not, or must say in the future is deeply at odds with the First Amendment, including the right of the public and investors to hear what Mr. Musk has to say,” court documents say.

“Moreover, because SEC Gag Orders at issue are by their terms non-negotiable, they are unconstitutional conditions in violation of the First Amendment. A private party’s supposed ‘consent’ to a required condition of settlement cannot and does not give the federal government a power of suppression denied it by the First Amendment.”

The appeals court had argued that Mr. Musk “had ‘the right to litigate and defend against the [SEC’s] charges’ or to negotiate a different agreement.”

It cited a similar claim Romeril v. SEC, which found a voluntary agreement did not violate the unconstitutional-conditions doctrine.

The case is Musk v. SEC, 23-626.