Musk Joins Moguls to Kill S.E.C. ‘Gag Orders’ at the Supreme Court

The Tesla chief executive had moved to have his own agreement with securities regulators terminated, but a federal judge in New York denied that request on Wednesday, just two days after Twitter’s board agreed to Mr. Musk’s $44 billion bid to buy the company. Mr. Musk’s deal requires him to get approval for his social media posts about Tesla — the charges were related to tweets he posted saying that he had secured financing to take Tesla private — and bans him from discussing the case.

The same argument for both sides: ‘Strong, vibrant markets’

The S.E.C.’s gag order has been around since 1972. The practice, which allows settling defendants to neither admit nor deny wrongdoings on the condition that they never speak about the case in public, is meant to help the S.E.C. police the markets more efficiently.

The rationale is that if every defendant opted out of a trial but then later reframed the charges to the public, it would undermine the validity of resolutions and the legitimacy of Wall Street’s chief regulators, experts say. “It makes everything look like a sham,” said Harvey Pitt, a former agency chairman, who has little sympathy for retractors. “It’s unseemly for somebody who doesn’t admit to then violate a gag order. They have an out — refuse to settle.”

Denials after settlement also suggest that nothing actually happened, potentially downplaying the risks surrounding an individual or entity to investors. For defendants, remaining silent about a case can be an invaluable protection. That’s a choice defendants can make, said Alma Angotti, a former enforcement lawyer at the S.E.C. and the Treasury Department: “It’s a voluntary waiver.”

But the executives in the amicus brief argue that the choice isn’t actually a choice. They say most cases end up settling because fighting the S.E.C. is too costly. Mr. Musk has said he settled because litigation would have put Tesla under too much financial pressure and jeopardized its financing.

And banning any discussions about the cases, the brief argues, actually goes against the S.E.C.’s mission to protect investors, leaving them in the dark instead about material information. The executives go on to cite the former S.E.C. chairman Arthur Levitt, who said in a 1999 speech that “quality information is the lifeblood of strong, vibrant markets.” The group argues that the S.E.C. should be “barred from discouraging full, frank, public discussion,” which ensures this vibrancy.

Next stop: A review from the high court?

Mr. Musk calls himself a “free speech absolutist” and says he believes in the unfettered flow of information within the law, as the amicus brief he joined argues to the Supreme Court.