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Musk loses challenge to in-house oversight of his Tesla tweets

The Second Circuit questioned why the CEO waited years to complain about the measure adopted to rein in his potential for affecting Tesla's stock price.

MANHATTAN (CN) — Tesla CEO Elon Musk failed to overturn corporate monitoring of some of his tweets imposed by the SEC.

In a 7-page ruling made public Monday, a three-judge panel for the Second Circuit found no reason to terminate oversight to which Musk had voluntarily agreed.

The Securities and Exchange Commission mandated oversight of Musk's social media posts concerning the electric vehicle manufacturer Tesla as part of October 2018 settlement. The consent decree requires that certain senior Tesla executives, including Musk, would not be authorized to post or publish tweets about the company without first review and pre-approval by Tesla’s general counsel or an in-house securities lawyer.

Musk later fought the oversight and told the Second Circuit in briefing last year that the provision “imposes an impermissible chilling effect” by threatening his free speech rights with potential contempt sanctions.

The three-judge panel threw out the appeal only days after holding oral arguments.

“Parties entering into consent decrees may voluntarily waive their First Amendment and other rights,” they wrote in an unsigned summary order. “Indeed, every consent decree by definition involves waiver of the right to trial, which saves the parties ‘the time, expense, and inevitable risk of litigation.’ Had Musk wished to preserve his right to tweet without even limited internal oversight concerning certain Tesla-related topics, he had ‘the right to litigate and defend against the [SEC’s] charges’ or to negotiate a different agreement — but he chose not to do so. Having made that choice, he may not use Rule 60 to collaterally reopen a final judgment merely because he has now changed his mind.”

Musk was unsuccessful as well in bringing a Rule 60(b) motion for alleged abuse of discretion.

“We see no evidence to support Musk’s contention that the SEC has used the consent decree to conduct bad-faith, harassing investigations of his protected speech,” the ruling states.

A footnote to the panel’s ruling notes that Musk forfeited his right to claim that that any waiver of his First Amendment rights is unenforceable since he did not argue before the District Court.

The SEC settlement stems from a tweet that the Tesla CEO posted in 2018 to his then-22 million Twitter followers that he had the financing to take electric vehicle company private for $420 a share. Regulators noted in an ensuing civil fraud suit that Musk had nothing of the kind.

Musk tried to renege on his deal with the SEC about a year ago, asking the court to throw certain portions of the agency's subpoena and to terminate the preapproval provision for his tweets.

U.S. District Judge Lewis Liman ruled against the business mogul on days after he publicly offered to buy Twitter.

The panel that heard Musk’s appeal was made up of U.S. Circuit Judges Debra Livingston and Reena Raggi, both appointees of former President George W. Bush; and U.S. Circuit Judge Maria Araujo Kahn, who was appointed this year by President Joseph Biden.

Musk announced Friday — the day after oral arguments over the consent decree — that Linda Yaccarino, a highly regarded advertising executive from NBCUniversal will be replacing him as CEO at Twitter.

She will take over in six weeks, eight months after Musk's tumultuous $44 billion acquisition of the social media platform.

Categories:Appeals, Business, Civil Rights, Media, Securities, Technology

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