The Southern District of New York denied requests made by Elon Musk and Tesla meant to hold the SEC accountable for “a pattern of conduct … that has gone beyond the pale.” According to a letter to the court, the SEC has spent its resources on “endless, unfounded investigations” instead of paying out the $40 million it collected in a settlement over Musk’s tweets. But the court said that it could not enforce a nonexistent deadline for distributing the settlement proceeds and that if the defendants wish to quash a subpoena, they should make a specific motion for that relief (SEC v. Musk, February 24, 2022, Nathan, A.).
Dueling letters. The saga begins in 2018, when Tesla “was a less mature company,” according to counsel’s February 17 letter to the court. Musk had tweeted that he had secured funding to take Tesla private, which turned out not to be true; this led to SEC charges that the parties eventually settled. But counsel wrote that while his clients settled based on an understanding that the SEC would distribute the settlement funds to shareholders and would “end the SEC’s harassment and, importantly, make this Court, and not the SEC alone, the monitor … going forward,” this has not come to pass.
The letter says that contrary to the SEC’s Rules of Practice, which provide for a proposed plan of distribution within 60 days after a respondent has turned over settlement funds, the SEC has been holding on to the $40 million in settlement funds for over 1200 days. Furthermore, counsel wrote, rather than seeking discovery in the court, the SEC has “gone rogue and unilaterally opened its own investigations … wholly outside of this Court’s supervision.” The letter asked the court to schedule a conference and effect a “course correction.”
In response, the SEC wrote that the distribution’s complexity means it has taken time to develop the plan of distribution, but that it expects to have a proposed plan by the end of next month. The SEC also denied that it has issued any subpoenas in the litigation and said that its attempts to engage directly with the defendants comply with the court’s request that the parties try to confer in good faith before raising compliance issues with the court. The defendants sent a further reply denying the SEC’s assertions.
‘Unclear’ request. The court issued a short order denying the defendants’ requests for relief, noting that their “precise application to the Court is unclear.” First, the court denied the request for a conference to address the delay in distributing the settlement assets. If the defendants wish to hold the SEC to a deadline, they should file a motion and submit briefing in support; “Otherwise, the Court cannot enforce a deadline that does not currently exist.”
Similarly, the court wrote that if the defendants have a non-frivolous basis to quash a subpoena in light of the court’s previous orders, they may make a specific motion supported by briefing.
Finally, the court said that the defendants’ letter does not contain specific facts or legal authority to support its request for “on-the-record assurance that the Commission has not leaked investigative details in violation of its own rules and policies, and is otherwise acting in accordance with the law.” Furthermore, it is doubtful that those regulations are judicially enforceable against the Commission, the court wrote, citing Second Circuit precedent explaining that the rules describe a privilege of discretion belonging to the agency.
The case is No. 18-cv-8865 (Musk) and No. 18-cv-8947 (Tesla).
The letter says that contrary to the SEC’s Rules of Practice, which provide for a proposed plan of distribution within 60 days after a respondent has turned over settlement funds, the SEC has been holding on to the $40 million in settlement funds for over 1200 days. Furthermore, counsel wrote, rather than seeking discovery in the court, the SEC has “gone rogue and unilaterally opened its own investigations … wholly outside of this Court’s supervision.” The letter asked the court to schedule a conference and effect a “course correction.”
In response, the SEC wrote that the distribution’s complexity means it has taken time to develop the plan of distribution, but that it expects to have a proposed plan by the end of next month. The SEC also denied that it has issued any subpoenas in the litigation and said that its attempts to engage directly with the defendants comply with the court’s request that the parties try to confer in good faith before raising compliance issues with the court. The defendants sent a further reply denying the SEC’s assertions.
‘Unclear’ request. The court issued a short order denying the defendants’ requests for relief, noting that their “precise application to the Court is unclear.” First, the court denied the request for a conference to address the delay in distributing the settlement assets. If the defendants wish to hold the SEC to a deadline, they should file a motion and submit briefing in support; “Otherwise, the Court cannot enforce a deadline that does not currently exist.”
Similarly, the court wrote that if the defendants have a non-frivolous basis to quash a subpoena in light of the court’s previous orders, they may make a specific motion supported by briefing.
Finally, the court said that the defendants’ letter does not contain specific facts or legal authority to support its request for “on-the-record assurance that the Commission has not leaked investigative details in violation of its own rules and policies, and is otherwise acting in accordance with the law.” Furthermore, it is doubtful that those regulations are judicially enforceable against the Commission, the court wrote, citing Second Circuit precedent explaining that the rules describe a privilege of discretion belonging to the agency.
The case is No. 18-cv-8865 (Musk) and No. 18-cv-8947 (Tesla).
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