Elon Musk tries to avoid testifying in Twitter-stock probe, asks court for help

Elon Musk's attempt to avoid testifying in a Twitter stock-purchase investigation continued yesterday with Musk asking a court to block a subpoena issued by the Securities and Exchange Commission. Musk's filing in US District Court for the Northern District of California claimed the SEC is "harassing" him, exceeding its authority to investigate, and making "overly burdensome" demands for "irrelevant evidence." The filing comes about a month after the SEC sued Musk to force him to testify. Musk provided testimony twice in July 2022 but is resisting the SEC's attempt to question him a third time. The SEC is investigating the purchases of Twitter's stock that Musk made in the months before he bought the company outright. The agency began its investigation in April 2022 after Musk acquired a 9 percent stake in Twitter and failed to disclose it within 10 days as required under US law. The SEC told the court that its "investigation pertains to considerably more than the timing and substance of a particular SEC filing; it also relates to all of Musk's purchases of Twitter stock in 2022 and his 2022 statements and SEC filings." The agency said it is trying to determine whether "Musk violated various provisions of the federal securities laws." Musk failed to appear for testimony on September 15 despite previously agreeing to appear on that date, the SEC said.

Musk: SEC probe “reeks of McCarthyism”

As Musk's legal team claimed in its filing yesterday:

[The] SEC's pattern of ceaseless and successive investigations of Mr. Musk demonstrates its bad faith. In 2018, the Commission brought charges against Mr. Musk for violating the securities laws in connection with a tweet about taking Tesla private. To save the company, Mr. Musk entered into a consent decree to resolve the charges. But that came at a high price. The Commission required that Mr. Musk subject himself to an unconstitutional prior restraint: preapproval of his material public communications about Tesla by a Tesla securities lawyer.

Since then, "the SEC has opened one investigation after another into Mr. Musk and companies related to him, often targeting its inquiries into his constitutionally protected rights," Musk's filing claimed. Several people other than Musk "have also been required to sit for testimony" in the ongoing Twitter-stock probe, the filing said. "During at least one of those testimonies, Staff inquired into Mr. Musk's passion for the First Amendment. The Staff's misuse of regulatory authority to probe a witness about Mr. Musk's political beliefs and the value he places on his constitutional rights reeks of McCarthyism that has no place in a free country." Musk's testimony in the Twitter-stock probe last year was provided remotely via WebEx. The SEC wants in-person testimony this time: "The Commission has provided no reason why Mr. Musk's third testimony must be conducted in person at the agency's Regional Office in San Francisco, California, rather than remotely (as before) or at a location more proximate to Mr. Musk's residence in Austin, Texas. If the Court does not quash the subpoena, at a minimum it should order that Mr. Musk's third testimony be conducted remotely for the convenience of the parties, just as his previous two were." The SEC said it already offered to conduct the testimony at any of its 11 offices across the US, including its Fort Worth, Texas, office, the nearest to Musk's residence. "Notwithstanding the specious nature of Musk's untimely objections, the SEC staff attempted to negotiate in good faith with Musk to find an alternative date and location for his testimony," the SEC lawsuit said. The SEC said it "proposed multiple dates in October and November 2023," but that its "good faith efforts were met with Musk's blanket refusal to appear for testimony."

SEC has “thousands of new documents”

Since Musk's July 2022 testimony, the SEC said it "has received thousands of new documents from various parties as part of its investigation, including hundreds of new documents produced by Musk." The SEC hasn't been able to question Musk about the newly obtained documents, and Musk hasn't provided a "legitimate basis" to "avoid compliance with a lawfully issued investigative subpoena," the SEC said. The SEC also said that "Musk's vague assertion of SEC harassment here is similarly unsupported," and that its subpoena "is proper and well within the SEC's power to conduct investigations into potential violations of the federal securities laws." Musk's filing claims the Twitter-stock investigation should have ended a year ago and that he has been "forced to play whack-a-mole with baseless SEC subpoenas in the present investigation... Nevertheless, Mr. Musk produced documents and made himself available for testimony twice." The nine hours of testimony last year covered Musk's "acquisition of Twitter stock in 2022, his conversations with Mr. Musk’s wealth manager regarding the required SEC disclosures, and discussions about his potentially joining Twitter’s board in April 2022," the Musk filing said.

Musk complains of “meandering, unbounded investigation”

Although the SEC lawsuit said the case is about more than Musk's late disclosure, he's still claiming that the whole investigation is about that one filing. Musk's legal team wrote:

Throughout the course of its investigation, the Commission has had more than ample opportunity to discover all potentially relevant information pertaining to this investigation into an allegedly late Schedule 13 filing. Historically, the SEC has resolved similar late Schedule 13 filings with a modest fine. There is no proper reason to compel further testimony in a case about an allegedly late filing that has been investigated to its last breath for well over a year... The government has failed to identify a single factually analogous case where a court has enforced a third subpoena in a similarly meandering, unbounded investigation into an allegedly days-late SEC filing.

Musk also claims that the subpoena violates the US Constitution because "only a properly appointed officer who is subject to appropriate presidential supervision may exercise authority of the type entrusted to the SEC Enforcement staff in this case." Musk hopes the SEC's powers will be limited in the SEC v. George Jarkesy case that is pending before the Supreme Court. Oral arguments in that case are scheduled for November 29. Musk asked the District Court to either deny the SEC's application to enforce the subpoena or stay the proceeding pending the Supreme Court's ruling in Jarkesy.