Musk facing another battle with US regulator
Elon Musk agreed to testify on September 15, 2022, but two days beforehand raised 'spurious objections' and said he would not appear. the SEC stated.
The US Securities and Exchange Commission, or SEC, has taken Elon Musk to court again — and this time it may win. The agency last week asked a US federal court to force Mr Musk to testify for its investigation into his $44bn (€42bn) takeover of social media giant Twitter (now known as X), the third time the SEC has taken Mr Musk to court.
It sued him in 2018 and again in 2019 in relation to a tweet Mr Musk sent saying that he had funding secured to take his electric carmaker Tesla private. The 2018 lawsuit was quickly settled on the condition that lawyers vet Mr Musk's future tweets. The 2019 lawsuit by the SEC trying to enforce that deal did not go their way.
In this case, the SEC is on solid ground as the law enforcing the requirements of investigative demands, or subpoenas, is clear cut, said several former SEC officials.
While the stakes are lower this time, the new case again shines a spotlight on the extraordinary feud between the world's richest man and the most powerful securities regulator, which has for years struggled to bring Mr Musk to heel.
"This case is different from past forays between the SEC and Elon Musk because it's a subpoena enforcement case," said Stephen Crimmins, a partner with Davis Wright Tremaine law firm and a former SEC trial lawyer.
"The law provides the SEC has subpoena power to take investigative testimony and gather documents."
If Mr Musk defies the court, he is likely to be fined until he testifies, lawyers said. Further defiance could, in an extreme scenario, lead to jail.
The SEC, which declined to comment, is probing whether Mr Musk broke securities laws in 2022 when he bought stock in Twitter, which Musk renamed X, as well as statements and filings he made in relation to the deal.
According to the SEC, it opened the probe in April 2022 and Mr Musk provided documents and testified via videoconference for two half-day sessions that July. The SEC later received new documents and subpoenaed Mr Musk in May to testify again, this time at its office in San Francisco, where X is based.
Mr Musk agreed to testify on September 15, but two days beforehand raised "spurious objections" and said he would not appear. Musk also refused SEC proposals to testify in Texas, where he lives, in October or November, the SEC said.
Among his objections, Mr Musk said the SEC was trying to "harass" him and that his counsel needed time to review potentially relevant material contained in a biography of Mr Musk published last month, the SEC said.
Last week, Mr Musk wrote on X that such agencies need "a comprehensive overhaul". Mr Musk's attorney Alex Spiro said that the investigation was "misguided" and that "enough is enough".
But it is not unusual for the SEC or other federal agencies to seek additional testimony as probes evolve, lawyers said.
"As investigations go on, you sometimes want to bring people back as you have more information," said Howard Fischer, a partner at law firm Moses & Singer and former SEC attorney. He added the court will likely order Musk to sit for additional testimony.
The courts have previously upheld SEC's subpoena rights.
Just months after Mr Musk agreed with the SEC to vet his tweets, the agency determined that he breached that deal and sued him to comply. But the judge challenged the settlement's "soft" standard for assessing when a tweet was material and told both parties to "put your reasonableness pants on" and work it out.
After that, the SEC was reluctant to return to the court even though staff believed he breached the deal on subsequent occasions, Reuters reported last year.
The SEC has opened other probes into Mr Musk, who has on several occasions denigrated the agency and alleged it is harassing him. He has also disputed the SEC's finding that he did not have funding secured for the Tesla take private, and has tried unsuccessfully to have a court rescind the 2018 settlement.
The San Francisco court, though, is unlikely to consider Mr Musk's bad blood with the agency and will focus on whether the SEC has been reasonably accommodating of Mr Musk's schedule and other logistical considerations.
"Musk is trying to make a point and he doesn’t want to be pushed around," said Robert Frenchman, a partner at Mukasey Frenchman who has defended clients in SEC matters.
"I don't think it's likely he wins this battle."
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