Judge rejects Musk’s claim that limits on his tweets violate First Amendment

A federal judge has rejected Tesla CEO Elon Musk's attempt to get out of a settlement with the Securities and Exchange Commission that requires Tesla to impose limits on Musk's social media statements.

The judge also rejected Musk's request to quash portions of an SEC subpoena that seeks documents related to whether he got pre-approval before posting a recent tweet about Tesla stock sales. The ruling against Musk was issued Wednesday by Judge Lewis Liman in US District Court for the Southern District of New York.

"Musk was not forced to enter into the consent decree" with the SEC, and he "cannot now seek to retract the agreement he knowingly and willingly entered by simply bemoaning that he felt like he had to agree to it at the time but now—once the specter of the litigation is a distant memory and his company has become, in his estimation, all but invincible—wishes that he had not," Liman wrote. The judge also called Musk's claim that the SEC is harassing him "meritless."

Musk and Tesla settled with the SEC in 2018 after Musk claimed on Twitter that he had secured funding to take Tesla private. The SEC said Musk hadn't actually secured funding and that his misleading tweets caused significant market disruption. In addition to the social media controls, Musk and Tesla each agreed to pay $20 million in penalties to settle the lawsuit.

Last month, Musk asked the court to terminate the settlement, claiming that the SEC is using the consent decree to "micro-manage" his Twitter activity, that he was "forced" into signing the deal, and that his "First Amendment freedoms are imperiled." Musk and Tesla also claimed the SEC "has been weaponizing the consent decree by using it to try to muzzle and harass Mr. Musk and Tesla."

“None of the arguments hold water”

Liman dispensed with Musk's First Amendment argument as follows:

Musk argues that the consent decree in this case should be terminated because (1) it "intrudes on Mr. Musk's First Amendment right to be free of prior restraints," (2) "has been misused to launch endless, boundless investigation of his speech," and (3) was extracted from Musk through the exercise of economic duress. None of the arguments hold water.

With regard to the First Amendment argument, it is undisputed in this case that Musk's tweets are at least presumptively "protected speech." At the same time, however, even Musk concedes 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." The consent decree thus does not impose obligations that have "become impermissible under federal law."

Moreover, to the extent that the consent decree imposes an additional restriction on Musk's speech by requiring him to obtain pre-approval of his communications about Tesla, "parties can waive their First Amendment rights in consent decrees and other settlements of judicial proceedings."

Liman also wrote that "Musk, by entering into the consent decree in 2018, agreed to the provision requiring the pre-approval of any such written communications that contain, or reasonably could contain, information material to Tesla or its shareholders. He cannot now complain that this provision violates his First Amendment rights."

The First Amendment portion of Liman's ruling cites a Second Circuit appeals court judgment in SEC v. Romeril, which found that an SEC settlement "does not violate the First Amendment because Romeril waived his right to publicly deny the allegations of the complaint." The Supreme Court has been asked to take up that case, with Musk himself joining a brief last week that said, "The SEC's prohibition against settling defendants criticizing the SEC's unproven allegations raises important First Amendment and Due Process Clause issues."

Different judge ruled Musk tweets were false

The same tweets that led to Musk's SEC settlement are also the subject of a class-action lawsuit against Musk and Tesla that seeks financial damages for Tesla shareholders. The judge in that separate case ruled that Musk's tweets about having secured funding to take Tesla private were false.

Amid Musk's fight to get out of his SEC settlement, he struck a deal to buy Twitter for $44 billion, claiming he is buying the company to protect free speech.