Elon Musk wants judge to quash judgement that cost him US$40 million

  • 09/03/2022
Elon Musk
"I entered into the consent decree for the survival of Tesla." Photo credit: Getty Images

Tesla CEO Elon Musk has petitioned a US judge to quash a consent decree that cost him US$20 million in fines and required his tweets about the company to be preapproved.

The controversial billionaire has ramped up his war of words with the US Securities and Exchange Commission (SEC) lately, with a lawyer for the company saying the SEC was harassing Musk with "endless, unfounded investigations".

The agreement was originally signed in 2018 after Musk tweeted to his followers he was considering taking Tesla private at $420 a share, a big premium on what each share was valued at at the time. He also said funding had been secured.

Many responses to the tweet at the time indicated it was being seen as either a joke, based on 420 being a reference to cannabis smoking, or an attempt to boost the price. Others took it seriously, however, urging Musk to change his mind.

In the filing, Musk said he learned about the SEC investigation the same day he made the original tweet and reaffirms there was funding and investor support.

"Despite this, the SEC's unrelenting regulatory pressure, combined with the attendant collateral consequence of the SEC's complaint against me, caused a scenario in which I was forced to sign the consent decree in 2018," Musk stated.

"Tesla was a less mature company and the SEC's action stood to jeopardise the company's financing. Defending against the SEC's action... was not in the interests of the company and its shareholders."

Musk said he thought both the company and its shareholders would be at "undue risk" if he didn't settle the matter promptly. He then said the SEC offered him a no-admit, no-deny monetary settlement but "moments" before he was due to sign it, he changed his mind.

"I learned for the first time that the settlement could require multiple companies I was affiliated with - Tesla, SpaceX, The Boring Company, and Neuralink - to either seek a publicly accessible waiver letter regarding the SEC's allegations or risk their future ability to raise money," Musk stated.

"Upon receipt of this information, I was adamant that we needed to withdraw from SECnegotiations. I had only wanted to settle to help Tesla, but I did not wish to cause harm to the other companies. It felt wrong to do so."

His lawyer told the SEC that he had withdrawn his decision to sign the settlement, at which point the commission filed its complaint against Musk. That was when he learned about the potential harms of the action.

Musk said he was told by his company's Investor Relations team that "several of Tesla's largest shareholders" could ditch their shares, prompting him to sign the decree "for the immediate survival" of his company.

"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," he concluded.

As well as a personal fine of US$20 million, Tesla was also fined US$20 million for Musk's tweet.

The SEC announced it was investigating Musk again in early February this year. Later that month, the Wall Street Journal reported that it was over potential insider trading.

According to the newspaper, Musk's brother Kimbal sold shares worth around US$108 million (NZ$161 million) a day before his brother asked his social media followers whether he should sell 10 percent of his stake in Tesla.

That tweet sent the share price sharply down. Reuters later revealed Musk's subsequent selling of over 10 percent of his shares had already been committed to plan, two months before the Twitter poll.