Elon Musk loses appeal against SEC settlement over misleading Tesla tweets

Just days after a three-judge panel heard lawyers’ arguments in the case, the summary order by the 2nd U.S. Circuit Court of Appeals in Manhattan was released.

Elon Musk, the CEO of Tesla, has lost an appeal against a settlement with securities regulators that was reached in 2018 after his tweets claiming he had secured funding to take Tesla private caused the company’s share price to jump and led to a temporary halt in trading. The 2nd U.S. Circuit Court of Appeals in Manhattan ruled on Monday that Musk cannot back out of the settlement, which required that his tweets be approved first by a Tesla attorney, and called for Musk and Tesla to pay civil fines over the tweets in which Musk said he had “funding secured” to take Tesla private at $420 per share.

Musk had challenged a lower court judge’s ruling last year requiring him to abide by the deal, arguing that circumstances have changed and because the decree contains a “prior restraint” that Musk contends violates the First Amendment. However, the appeals court rejected Musk’s prior restraint argument, saying that parties entering consent decrees may voluntarily waive their First Amendment and other rights.


The settlement with the Securities and Exchange Commission (SEC) required Musk and Tesla to each pay $20 million in fines over Musk’s tweets. The funding was not secured, and Tesla remains public. In its ruling, the 2nd Circuit said it saw “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.” Instead, it said, the SEC had opened “just three inquiries into Musk’s tweets since 2018” and each challenged tweet “plausibly violated the terms of the consent decree.”

The SEC was investigating whether Musk’s November 2021 tweets asking Twitter followers if he should sell 10% of his Tesla stock violated an October 2018 settlement that Musk signed after the SEC brought an enforcement action against him alleging that his tweets about going private violated antifraud provisions of securities laws. Judge Lewis Limon ruled in April 2022 that Musk sent the tweets without getting pre-approval. Lawyers in the case did not immediately respond to messages seeking comment.

In conclusion, the appeals court’s ruling is a blow to Musk, who had hoped to overturn the settlement and avoid further scrutiny from the SEC. The decision underscores the importance of corporate leaders being truthful and transparent in their communications with investors, as false statements can have serious consequences for companies and their shareholders. It also serves as a reminder that even high-profile executives like Musk are not above the law, and must be held accountable for their actions.