March 8 (Reuters) – Tesla Inc (TSLA.O) Chief Executive Elon Musk on Tuesday asked a judge to terminate or modify a 2018 agreement with the U.S. securities regulator requiring some of his tweets to be vetted by a lawyer.
Musk also asked the court to block a U.S. Securities and Exchange Commission (SEC) subpoena requesting records of pre-approval of a Twitter poll he conducted in November on potentially selling some of his stock.
“The SEC’s pursuit of Mr. Musk has crossed the line into harassment, which is quintessential bad faith,” Musk’s lawyers said in documents to the judge at the U.S. District Court for the Southern District of New York.
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Musk’s lawyers said the 2018 consent decree allowed the SEC’s “roving and unbounded investigations” into the outspoken government critic while imposing restraints on exercising his constitutional rights on free expression.
In early November, Musk tweeted that he would offload 10% of his stake in the electric-car maker if users of the social media network approved. The poll, which won approval of a majority of respondents, sent Tesla shares slumping, and since then Musk has sold $16.4 billion worth of stock.
Musk’s tweet renewed questions about whether he was in compliance with the 2018 deal that requires him to obtain approval from a lawyer before issuing written communications about information that is material to Tesla or its shareholders.
Tesla said on Tuesday that Musk’s tweet on stock sales “is behavior the SEC should encourage: a CEO’s transparency with the public and shareholders about a proposed stock sale.”
Musk will face a “real uphill fight” to persuade the court to terminate the 2018 agreement and block the SEC subpoena over his stock sales tweet, said Stephen Crimmins, partner at Murphy & McGonigle, New York.
“Courts generally give the SEC a lot of leeway to enforce
subpoenas,” said Crimmins, who is not connected to the case.
“Judges generally take the approach that if you agree to a consent decree, you’re stuck with it. Saying you don’t like the deal is not going to get you out of it.”
The SEC did not immediately respond to a request for comment.
‘I NEVER LIED’
The SEC sued Musk in August 2018 after he posted on Twitter that he had “funding secured” to potentially take his electric car company private at $420 per share. In reality, a buyout was not close.
Tesla and Musk settled by agreeing to each pay $20 million in civil fines, and to let Tesla lawyers vet some of Musk’s communications in advance, including Twitter posts that could affect Tesla’s stock price. Musk also gave up Tesla’s chairmanship.
“I never lied to shareholders. I would never lie to shareholders. I entered into the consent decree for the survival of Tesla, for the sake of its shareholders,” Musk told U.S. District Judge Alison Nathan in a court filing.
Musk added that he later learned from Tesla’s investor relations team that several of the company’s largest shareholders “could cede their ownership in Tesla – substantially impacting Tesla’s financing – if the case was not settled expediently,” which he said contributed to his decision to settle.
He said the decision was made in order to assure “immediate survival of Tesla.”
Tesla on Tuesday accused the SEC of exploiting the consent decree to “micro-manage Mr. Musk’s Twitter activity” and retaliate against Musk for his criticism of the agency.
Last month, Tesla and Musk accused the SEC of “going rogue” and harassing them with an investigation to punish the CEO for being an outspoken critic of the government.
Musk has also mocked the agency in his tweets since the 2018 probe: “SEC, three letter acronym, middle word is Elon’s.” He also tweeted in 2020 that Tesla will make short pants in radiant red satin with gold trim and send them to the SEC, which he called “shortseller enrichment commission.”
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Reporting by Hyunjoo Jin in San Francisco, David Shepardson in Washington and Jonathan Stempel and Jody Godoy in New York;
Editing by Will Dunham and Matthew Lewis
Our Standards: The Thomson Reuters Trust Principles.