The US Securities and Exchange Commission (SEC) has taken Elon Musk to court again, and this time it could win.
Last week, after the agency asked a federal court to force Musk to testify for its investigation into his $44 billion (R853bn) takeover of social media giant Twitter, marked the third time the SEC has taken Musk to court.
It sued him in 2018 and again in 2019, in relation to a tweet 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 vetted Musk’s future tweets. The 2019 lawsuit by the SEC trying to enforce that deal did not go its way.
In that case, the SEC was on solid ground as the law enforcing the requirements of investigative demands, or subpoenas, was 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 most powerful securities regulator which has, for years, struggled to bring Musk to heel.
“This case is different from past forays between the SEC and Elon Musk because it’s a subpoena enforcement case. These cases are really cut and dry," 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 Musk defied the court, he would probably be fined until he testified, lawyers said. Further defiance could, in an extreme scenario, lead to jail.
The SEC, which declined to comment, is probing whether 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 had opened the probe in April 2022 and Musk had provided documents and testified via video conference for two half-day sessions that July. The SEC had later received new documents and subpoenaed Musk in May to testify again, this time at its office in San Francisco, where X is based.
Musk had agreed to testify on September 15, but two days beforehand raised “spurious objections” and had 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, Musk had said the SEC was trying to “harass” him and that his counsel needed time to review potentially relevant material contained in a biography of Musk published last month, the SEC said.
Yesterday Musk wrote on X that such agencies need “a comprehensive overhaul”. Musk’s attorney, Alex Spiro, said the investigation was “misguided” and that “enough is enough”.
But it was not unusual for the SEC or other federal agencies to seek additional testimony as probes evolved, 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 said the court would probably order Musk to sit for additional testimony.
“All you have to show is … the subpoena is part of a legitimate effort to obtain information.”
The courts have previously upheld SEC’s subpoena rights.
In 2018, a court compelled Jay-Z to testify after he ignored SEC subpoenas, although the judge told the SEC to seek his permission if it needed more than a day. The musician was also represented by Spiro. In 2022, a judge ordered Terraform Labs founder to comply with an SEC subpoena for documents.
Just months after Musk had agreed with the SEC to vet his tweets, the agency had determined that he had breached that deal and sued him to comply. But the judge had challenged the settlement’s “soft” standard for assessing when a tweet was material and had told both parties to “put your reasonableness pants on” and work it out.
After that, the SEC had been reluctant to return to the court even though staff had believed he had breached the deal on subsequent occasions, Reuters reported last year.
The SEC has opened other probes into Musk, who has, on several occasions, denigrated the agency and alleged it was 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 Musk’ss bad blood with the agency and will focus on whether the SEC has been reasonably accommodating of Musk’s schedule and other logistical considerations.
Lawyers Reuters interviewed said the SEC appeared to have met that bar.
“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.