Alex Spiro, Elon Musk’s lawyer, sent a letter to the SEC on behalf of Musk and Tesla arguing that the agency is “harassing” them and failed to transfer money to Tesla shareholders.
Tesla, Elon Musk, and the SEC
Musk and the SEC have had a few run-ins with each other, rarely with a good outcome. Most famously, the SEC filed a lawsuit against Musk over his infamous “funding secured” comment regarding his failed attempt to take Tesla private back in 2018.
The Security and Exchange Commission (SEC) judged that Musk exaggerated when saying that the funding was “secured”:
Musk went on a campaign against the SEC, calling them names and claiming that they were working for people shorting the electric automaker. But ultimately, Tesla and Musk ended up reaching a settlement with the SEC.
As part of the settlement, Musk agreed to step down from the role of chairman of the board, and both Tesla and Musk had to each pay $20 million in fines.
The CEO presumably didn’t want Tesla to have to pay for his issue with the SEC. While he couldn’t directly pay for Tesla’s part of the fine, he decided to buy $20 million worth of shares from Tesla. That way, he sort of indirectly ended up paying for Tesla’s fine – though he also ended up with ~71,000 additional Tesla shares in the process.
As we previously reported, Musk ended up actually making money from the settlement due to Tesla’s stock price surging.
Another part of the settlement was that Musk and Tesla had to agree for the former to have his tweets reviewed by the latter’s legal department if they are material to the company. Despite the settlement, Musk didn’t change his use of his popular Twitter account with over 74 million followers and has remained defiant when it comes to the SEC.
As for the SEC, it reportedly sent several inquiries to Tesla about Musk’s use of Twitter when it relates to potentially material information.
Musk wants the court to reign in a “rogue” SEC
Now Musk’s lawyer, Alex Spiro, sent a letter to the court to request an audience to discuss what he describes as the SEC’s “harassment” of Tesla and Musk. He also claims that the SEC has yet to distribute the $40 million settlement money to shareholders.
Spiro wrote in the letter:
We write to alert the Court to a pattern of conduct by the Securities and Exchange Commission (the “SEC”) that has gone beyond the pale. Simply stated, the SEC has failed to comply with its promise to pay Tesla’s shareholders the $40 million it collected as part of the settlement in these cases and that it purports to be holding for them. Instead, it has been devoting its formidable resources to endless, unfounded investigations into Mr. Musk and Tesla. We are respectfully requesting that the Court schedule a conference to address why the SEC has failed to distribute these funds to shareholders but has chosen to spend its energy and resources investigating Mr. Musk’s and Tesla’s compliance with the consent decree by issuing subpoenas unilaterally, without Court approval.”
Musk and co. argue through Spiro that the agency has gone “wrong” when it comes to implementing the policing of Musk’s Twitter:
Despite the SEC’s inattention and dereliction when it comes to paying Tesla’s shareholders, it has been more than energetic in going after Mr. Musk and Tesla, largely to police Mr.Musk’s public pronouncements via Twitter. Mr.Musk and Tesla respectfully seek a course correction. The SEC has not once come before Your Honor to seek discovery concerning compliance under the consent decree. Instead, it has gone rogue and unilaterally opened its own investigations. The SEC has conducted these investigations wholly outside of this Court’s supervision. But this Court’s consent decree, by design and by its terms, regulates Mr.Musk and Tesla’s compliance, and they never agreed to a settlement that allows the SEC to issue subpoenas absent oversight and approval from this Court. If the SEC truly perceives non-compliance and can identify a good-faith basis, it must proceed before Your Honor. It is unsurprising that, despite he SEC’s serial investigations—some of which involved one investigation being closed only for another to be opened at the same time—there has been no finding of any wrongdoing.
Here’s the full letter:
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That Alex Spiro is good. If you are a fan of a well-crafted argument, do yourself a favor and read that letter. He tears the SEC a new one in it. But as to whether or not he is in the right, I don’t know. We are too much in the legal weeds for me.
As for my personal opinion, for what’s it’s worth, I think the original problem that led to this settlement was a nothing burger. I seriously doubt that Musk was trying to mislead investors. He certainly jumped the gun and botched his disclosure of the early discussions about taking Tesla private, but that’s about it.
However, now years later, I think Musk’s use of Twitter has become more problematic, not less. I believe Musk should seriously rethink his use of the platform. But, do I think the SEC is the right entity to police his use of Twitter. Certainly not.
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