Securities & Exchange Commission vs. Elon Musk & the First Amendment

Case Western Reserve Law Review Case Western Reserve Law Review

Volume 70 Issue 2 Article 10

2019

Securities & Exchange Commission vs. Elon Musk & the First Securities & Exchange Commission vs. Elon Musk & the First

Amendment Amendment

Jerry W. Markham

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Securities & Exchange Commission vs. Elon Musk & the First Amendment

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Case Western Reserve Law Review·Volume 70·Issue 2·2019

339

Securities & Exchange

Commission vs. Elon Musk & the

First Amendment

Jerry W. Markham

†

[T]he best test of truth is the power of the thought to get itself accepted in

the competition of the market . . . . That at any rate is the theory of our

Constitution.

Abstract

The Securities and Exchange Commission (“SEC”) is responsible

for administering the federal securities laws, which mandate the content

and timing of information disseminated to shareholders of public

companies. SEC regulations adopted under those statutes are claimed

to be exempt from First Amendment protection because they only

regulate “commercial” speech. Such speech has been historically denied

full First Amendment protection. However, an SEC enforcement action

brought against Telsa, Inc. and its chief executive officer Elon Musk

demonstrates the danger of the SEC’s unrestrained application of the

commercial speech doctrine to viewpoint-based speech. Through that

action, the SEC is causing the censorship of Musk’s “tweets” on Twitter

concerning his often-controversial views on the role and success of

Tesla’s electronic automobiles in combating climate change, one of the

most critical political and social issues of our time. This Article argues

that the SEC should cease regulation of viewpoint-based speech on

Twitter and other social media. The rough and tumble world of social

media, and its now central role in the public debate on vital political

and social issues, deserves full First Amendment protection.

Contents

Introduction .................................................................................. 340

I. The Elon Musk Twitter Controversy ....................................... 341

II. The First Amendment and “Commercial Speech” ..................... 350

III. The SEC and the First Amendment ......................................... 356

A. The Core Mission of the SEC is to Compel and Censor Commercial

Speech ................................................................................................ 356

B. SEC Licensing Requirements and the Financial Press ........................ 358

C. Effect of Disclaimers on SEC Censorship Requirements .................... 360

† Professor of Law, Florida International University College of Law at

Miami. The author owns a Tesla all-electric vehicle.

1. Abrams v. United States, 250 U.S. 616, 630 (1919) (Holmes, J.,

dissenting).

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Securities & Exchange Commission vs. Elon Musk & the First Amendment

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D. SEC Speech Restrictions Negated by Public Debate ............................ 360

E. SEC Mandated Self-Censorship Through Monitoring Requirements ... 361

F. SEC Regulation of Speech through Demeanor and Facial

Expressions ........................................................................................ 362

G. SEC Compelled Speech on Political Issues – Proxy Regulations ......... 364

H. SEC Compelled “Shaming” Speech – Proxy Votes on Social Issues ... 366

I. SEC Compelled Shaming Speech – Executive Compensation Proxy

Votes ................................................................................................. 367

J. SEC Compelled Shaming Speech – “Conflict Diamonds” .................... 369

K. SEC Compelled Shaming Speech – Climate Change Disclosures ......... 369

IV. First Amendment Protection for Musk on Twitter............... 371

Conclusion ...................................................................................... 378

Introduction

The Securities and Exchange Commission (“SEC”) is responsible

for the administration of the federal securities laws, which mandate the

content and timing of information disseminated to shareholders of

public companies.

SEC regulations are generally held to be exempt

from First Amendment protection because they regulate only “commer–

cial” speech.

Such discourse is said to be unworthy of the broad First

Amendment protections given to political and social speech.

An SEC

enforcement action brought against Tesla, Inc. and its chief executive

officer Elon Musk demonstrates the danger of the SEC’s unrestrained

application of the commercial-speech doctrine to viewpoint-based

speech on social media.

Through that action, the SEC is effectively

censoring Musk’s “tweets.”

Those postings concern his often

2. See generally Joel Seligman, The Transformation of Wall Street

(3d ed. 2003) (describing the history and role of the SEC).

3. See Russell G. Ryan, The Federal Securities Laws, the First Amendment

and Commercial Speech: A Call for Consistency, 59 St. John’s L. Rev.

57, 67–71 (1984) (describing the application of the “commercial speech”

doctrine to federal securities laws).

4. See, e.g., Antony Page, Taking Stock of the First Amendment’s

Application to Securities Regulation, 58 S.C. L. Rev. 789, 790–92 (2007)

(observing that “an impressive list of commentators” have argued that

the First Amendment should not apply to securities regulation, but

asserting that arguments supporting that claim are unpersuasive); Karl

M.F. Lockhart, A ‘Corporate Democracy’? Freedom of Speech and the

SEC, 104 Va. L. Rev. 1593, 1598–99 (2018) (examining limitations on

free speech imposed by federal securities laws); Lloyd L. Drury, Disclosure

is Speech: Imposing Meaningful First Amendment Constraints on SEC

Regulatory Authority, 58 S.C. L. Rev. 757 (2007) (same).

5. Complaint at 3, U.S. Sec. & Exch. Comm’n (SEC) v. Musk, No. 1:18-cv-

8865 (S.D.N.Y. Sept. 27, 2018), ECF No. 1.

6. See Consent Motion for Entry of Final Judgment at 13 ex.2, SEC v. Musk,

No. 1:18-cv-8865 (S.D.N.Y. Oct 16, 2018), ECF No. 14; see also Knight

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Securities & Exchange Commission vs. Elon Musk & the First Amendment

341

controversial views on the role of Tesla’s all-electric automobiles in

combating climate change, one of the most important political and

social issues of our time.

This Article argues that the SEC should cease regulating viewpoint-

based speech on Twitter and other social media. The rough-and-tumble

world of those Internet-based forums and their central role in the public

debate on critical social and political issues deserve full First Amend–

ment protection.

I. The Elon Musk Twitter Controversy

Tesla’s core mission is “to accelerate the advent of sustainable

transport by bringing compelling mass market electric cars to market

as soon as possible.”

As Tesla’s CEO, Elon Musk is the leader of that

effort.

Although Tesla’s popular production models did not start

First Amendment Inst. v. Trump, 928 F.3d 226, 230–31 (2d Cir. 2019)

(describing Twitter and how its participants interact with each other).

7. See Catherine Clifford, Elon Musk; Tesla’s Work ‘Supersedes Political

Parties, Race, Creed, Religion’, CNBC (Nov. 6, 2018, 9:00 AM),

https://www.cnbc.com/2018/11/05/elon-musk-teslas-work-is-important-

to-the-future-of-the-world.html [https://perma.cc/NC9X-WNWR]. Musk

and Tesla are also developing solar energy systems for residential housing.

Ashlee Vance, Elon Musk: Tesla, SpaceX, and the Quest for a

Fantastic Future 16 (2015). Musk is separately pursuing the

commercial exploitation of space and colonization of Mars through

SpaceX, the reconstruction of the nation’s infrastructure through the

Boring Company, and the linkage of computers with the human brain

through the Neuralink Corporation. Id. at 22; Aarian Marshall, Elon

Musk’s Boring Company Inches Closer to Making Hyperloop a Reality,

Wired (Apr. 19, 2019, 10:00 AM), https://www.wired.com/story/elon-

musks-boring-company-takes-small-step-toward-reality/ [https://perma.cc/

JBR6-9ARH]; Daniela Hernandez & Heather Mack, Elon Musk’s

Neuralink Shows Off Advances to Brain-Computer Interface, Wall St.

J. (July 17, 2019, 3:05 AM), https://www.wsj.com/articles/elon-musks-

neuralink-advances-brain-computer-interface-11563334987 [https://perma.cc/

62US-7SQX].

8. Elon Musk, The Mission of Tesla, Tesla (Nov. 18, 2013), https://www

.tesla.com/blog/mission-tesla [https://perma.cc/UM7F-WQRC].

9. Musk became Tesla’s chairman in 2004 and its CEO in 2008. Abigail Hess,

How Tesla and Elon Musk Became Household Names, CNBC (Nov. 21,

2017, 11:46 AM), https://www.cnbc.com/2017/11/21/how-tesla-and-elon-

musk-became-household-names.html [https://perma.cc/WBY3-SWZP].

Tesla issued stock to the public in 2010, which subjected it to SEC

regulations.

See Timeline: Main Events in Tesla’s History as a Public

Company, Reuters (Aug. 10, 2018, 3:30 PM), https://www.reuters.com/

article/us-tesla-musk-timeline/timeline-main-events-in-teslas-history-as-

a-public-company-idUSKBN1KV2A0 [https://perma.cc/7PXA-Q994].

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appearing until 2013,

Tesla delivered to consumers roughly 245,000

all-electric vehicles in 2018.

Tesla was then the world’s leading

producer of all-electric motor vehicles,

allowing the company to boast

that it was “starting to make a tangible impact on accelerating the

world to sustainable energy.”

Musk is an avid user of Twitter.

Many of his tweets express his

unique and controversial viewpoints

on Tesla’s efforts to transform

the largely fossil-fuel-based automobile industry into a more eco-

10. See Drake Baer, The Making of Tesla: Invention, Betrayal, And the Birth

of the Roadster, Bus. Insider (Nov. 11, 2014, 12:06 PM), https://www

.businessinsider.com/tesla-the-origin-story-2014-10 [https://perma.cc/C3X6-

MTS5].

11. Tesla Q4 2018 Vehicle Production & Deliveries, Also Announcing $2,000

Price Reduction in US, Tesla (Jan. 2, 2019), https://ir.tesla.com/news-

releases/news-release-details/tesla-q4-2018-vehicle-production-deliveries-

also-announcing-2000 [https://perma.cc/MZ7X-AW7N].

12. Kalyan Kumar, Tesla Model 3 Dominates US Electric Car Market with

60% of EV Sales, Int’l Bus. Times (Apr. 8, 2019, 10:47 AM), https://

www.ibtimes.com/tesla-model-3-dominates-us-electric-car-market-60-ev-

sales-2783940 [https://perma.cc/8UKZ-LA6F]; see also Noel Randewich,

Tesla Becomes Most Valuable U.S. Car Maker, Edges Out GM, Reuters

(Apr. 10, 2017, 12:35 PM), https://www.reuters.com/article/us-usa-

stocks-tesla/tesla-becomes-most-valuable-u-s-car-maker-edges-out-gm-

idUSKBN17C1XF [https://perma.cc/3LK3-BRS4] (describing Tesla’s capital

market growth). In 2018, Tesla held a seventy-five percent share of the

U.S. all-electronic car market. See Kumar, supra.

13. Tesla Q4 2018 Vehicle Production & Deliveries, Also Announcing $2,000

Price Reduction in US, supra note 11; see also Simon Alvarez, The Tesla

Effect is Reaching Critical Mass, and it Could Put Big Oil on the Defensive,

Teslarati (May 12, 2019), https://www.teslarati.com/tesla-effect-puts-

big-oil-on-the-defensive/ [https://perma.cc/3N3X-PSVU] (describing Tesla’s

place within the growing electric-vehicle market).

14. Matthew Goldstein & Emily Flitter, Tesla Chief Elon Musk is Sued by

S.E.C. in Move That Could Oust Him, N.Y. Times (Sept. 27, 2018),

https://www.nytimes.com/2018/09/27/business/elon-musk-sec-lawsuit-

tesla.html [https://perma.cc/H668-AUBB].

15. See, e.g., Elon Musk (@elonmusk), Twitter (Aug. 25, 2018, 4:15 PM),

https://twitter.com/elonmusk/status/1120502923136520192?lang=en

[https://perma.cc/6N8V-GGZD] (claiming that the cost of operating an

electric car is “much lower” than operating a gas-powered car); Andrew

J. Hawkins, How Tesla Changed the Auto Industry Forever, The Verge

(July 28, 2017, 6:58 PM), https://www.theverge.com/2017/7/28/16059954/

tesla-model-3-2017-auto-industry-influence-elon-musk [https://perma.cc/

KN6E-9MPY] (“[M]any are parsing over every tweet by CEO Elon Musk

for clues about the car’s cost, interior, and what sort of options will be

available.”).

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Securities & Exchange Commission vs. Elon Musk & the First Amendment

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friendly industry.

His tweets are often unstructured, erratic, in–

accurate, indecorous; they are also typically scathing about his critics.

Nevertheless, Musk’s tweets are of broad public interest, as evidenced

by the fact that he has some twenty-eight million followers on Twitter.

Those tweets are also intensely scrutinized, criticized, and widely

reported on by mass media and Internet blogs.

The SEC brought an enforcement action against Tesla after Musk

tweeted in August 2018 that Tesla had secured financing that would

allow it to buy out public shareholders at a premium over existing

market prices.

Tesla’s stock price then jumped over six percent, but

the plan to go private, if there ever was one, was abandoned a few

16. See, e.g., Kristin Houser, 7 Ways Tesla is Changing Everything, Futurism

(Feb. 26, 2017), https://futurism.com/ready-for-edit-7-ways-tesla-is-

changing-everything [https://perma.cc/U6FQ-V93H].

17. See Rebecca Marston, The Weird and Wonderful Life of Elon Musk, BBC

(Nov. 16, 2018), https://www.bbc.com/news/business-45560987 [https://

perma.cc/5E7X-QXP8] (describing Musk’s innovative, controversial, and

sometimes bizarre actions); Nathan Bomey, Why Does Tesla CEO Elon

Musk Keep Getting Himself into a Mess, USA Today (Sept. 7, 2018, 4:54

PM), https://www.usatoday.com/story/money/cars/2018/09/07/tesla-

ceo-elon-musk-marijuana-controversy/1222499002/ [https://perma.cc/N7P6-

YZ5E] (describing a podcast during which Musk was apparently smoking

marijuana and describing his quarrels with the press). Musk also engaged

in a Twitter slanging match with a cave diver over the issue of how to

rescue some children trapped in a cave in Thailand. In the course of that

exchange, Musk referred to the diver as the “pedo guy.” The diver sued

Musk for defamation and sought $190 million in damages. Musk defended

his remark as being a mere taunt and testified that such insults were

common in the free wheeling world of Twitter. A jury found in favor of

Musk, leading a least one media source to claim that Twitter is effectively

immune from defamation complaints. Nichola Groom & Rachel Parsons,

Tesla Boss Elon Musk Wins Defamation Suit Over His ‘Pedo Guy’ Tweet,

Reuters (Dec. 6, 2019), https://www.reuters.com/article/us-musk-

lawsuit/tesla-boss-elon-musk-wins-defamation-trial-over-pedo-guy-tweet-

idUSKBN1YA13U [https://perma.cc/6UVD-7M25].

18. See @elonmusk (Elon Musk), Trackalytics, https://www.trackalytics

.com/twitter/profile/elonmusk/ (last updated Dec. 27, 2019) [https://

perma.cc/5YAQ-TC92].

19. See, e.g., Marston, supra note 17 (analyzing Musk’s history of “Twitter

outbursts”); Rachel Sandler, Elon Musk Continues Bizarre Twitter Use

Over A Wild Weekend, Forbes (June 17, 2019, 1:02 PM), https://www.

forbes.com/sites/rachelsandler/2019/06/17/elon-musk-continues-bizarre-

twitter-use/#67e44d3d3598 [https://perma.cc/WAZ3-4RLK] (analyzing

a “strange series of tweets” Musk sent over one weekend).

20. Elon Musk Charged with Securities Fraud for Misleading Tweets, SEC

(Sept. 27, 2018), https://www.sec.gov/news/press-release/2018-219 [https://

perma.cc/H668-AUBB].

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weeks later.

The SEC then sued Tesla and Musk, charging that his

tweet had misled investors because the funding for such a transaction

was not in place.

The SEC sought to remove Musk from the manage–

ment of Tesla, bar him from acting as an officer or director of any public

company, and subject him to large civil fines.

This was not the SEC’s first effort to suppress an automotive

genius. Shortly after World War II, an SEC investigation led to the

indictment of Preston Tucker, a flamboyant figure who was then

building an ultra-modernistic automobile with advanced safety feat–

ures.

Tucker sold stock to the public to fund this venture, but he ran

21. See id. There is some speculation that Musk’s tweet was actually a

marijuana-related joke; if so, it was a bad one. See, e.g., Ian Spiegelman,

Elon Musk May Have Ruined Twitter for All Puckish Billionaire CEOs,

L.A. Mag. (June 14, 2019), https://www.lamag.com/citythinkblog/elon-

musk-sec-twitter/ [https://perma.cc/P5FV-A8KS] (speculating that Musk’s

tweet about “taking Tesla private at $420” was a joke, but that, “[o]f

course, the stiffs at the SEC didn’t get that ‘420’ was a joke about smoking

weed”). Musk’s tweet stated that: “Am considering taking Tesla private

at $420. Funding secured.” Id.

22. Elon Musk Charged with Securities Fraud for Misleading Tweets, supra

note 20.

23. Id. The SEC’s action had even broader ramifications because it was “likely

to send shock waves across corporate America and could lead to a re-

evaluation of how companies use Twitter to communicate with the

investing public.” Goldstein & Flitter, supra note 14.

24. See Abigail Tucker, The Tucker Was the 1940s Car of the Future,

Smithsonian Mag. (Dec. 2012), https://www.smithsonianmag.com/

history/the-tucker-was-the-1940s-car-of-the-future-135008742/ [https://

perma.cc/N6M8-XNGA]. The so-called “Tucker Torpedo” promoted what

were then revolutionary safety innovations such as a protective windshield,

padded dashboards, and seat belts; see also William Faloon, Inventor of

Safer Automobile, Life Extension Mag. (Aug. 2006), https://www.

lifeextension.com/magazine/2006/8/awsi/page-01?p=1 [https://perma.cc/

5K56-4KTB]; Alex A., Find of the Year? 1946 Tucker Torpedo prototype

II hides a secret Riviera, The Vintage News (June 10, 2016),

https://www.thevintagenews.com/2016/06/10/find-of-the-year-1946-tucker-

torpedo-prototype-ii-hides-a-secret-riviera-ii-hides-a-secret-riviera-2-2/

[https://perma.cc/LNX4-8TDH] (describing additional safety features of

the Tucker Torpedo).

Musk and Tesla are also advocates of automotive safety as demonstrated

by Tesla’s exemplary crash ratings and its efforts to introduce autonomous

cars as a means of reducing driver errors. See Tesla Safety Report, Tesla,

https://www.tesla.com/VehicleSafetyReport [https://perma.cc/UKA3-

RWGG] (last visited Jan. 2, 2020); Robert Ferris, Tesla Model 3 Earns

Perfect 5-Star NHTSA Safety Rating, CNBC (Sept. 20, 2018, 12:41 PM),

https://www.cnbc.com/2018/09/20/tesla-model-3-earns-perfect-5-star-

nhtsa-safety-rating.html [https://perma.cc/VV2R-64BU]. Unsurprisingly,

Musk’s and Tesla’s Internet blog boasts about the safety of Tesla’s

vehicles led to a brouhaha with another government agency: the U.S.

National Highway Traffic Safety Administration (NHTSA). See Ryan

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Securities & Exchange Commission vs. Elon Musk & the First Amendment

345

afoul of the SEC. The SEC claimed that Tucker was incapable of

producing any actual cars, which resulted in the Justice Department

indicting Tucker and several of his executives.

After a lengthy trial,

the defendants were acquitted of all charges.

As portrayed in a popular

movie, however, the government’s action destroyed the company, which

was able to produce only fifty-one cars before its failure.

Musk proved to be a wilier target. Initially, he vowed to contest

the SEC’s charges, contending that the agency was interfering with his

First Amendment rights.

But calmer heads prevailed. Removing Musk

from Tesla’s management posed a serious threat to the company’s

survival and likely would have evaporated billions of dollars in

Browne, Tesla Received a Cease-and-Desist Letter From US Agency Over

Model 3 Safety Claims, CNBC (Aug. 7, 2019, 3:12 PM), https://www.cnbc.

com/2019/08/07/tesla-scrutinized-by-the-nhsta-over-model-3-safety-

claims.html [https://perma.cc/PCZ8-88ET]. The NHTSA ordered Tesla

to cease and desist from misleadingly claiming that Tesla’s NHTSA safety

ratings established that Tesla drivers had the lowest probability of being

injured in an automobile crash. See id. Tesla rejected the agency’s request,

contending that the NHTSA’s ratings did prove Tesla’s safety claims. Id.

The NHTSA then referred the matter to the Federal Trade Commission

for a consumer fraud investigation. Id.

25. Keith Barry, Jan. 22, 1950: Jury Acquits Tucker of Fraud, Wired (Jan.

22, 2010, 12:00 AM), https://www.wired.com/2010/01/0122preston-

tucker-acquitted/ [https://perma.cc/7WMV-BZGS]. The U.S. Attorney

prosecuting this case was Otto Kerner, Jr. See James Warren et al.,

Tucker’s Film Trial Torpedoes Reality, Chi. Trib. (Oct. 4, 1988),

https://www.chicagotribune.com/news/ct-xpm-1988-10-04-8802040657-

story.html [https://perma.cc/27D6-3NB9]. Kerner later became the

Governor of Illinois, a federal judge on the Seventh Circuit, and an inmate

in a federal prison after he was convicted on corruption and stock-fraud

charges. Seth S. King, Ex-Gov. Otto Kerner Dies; Convicted While a

Judge, N.Y. Times (May 10, 1976), https://www.nytimes.com/1976/05/

10/archives/exgov-otto-kerner-dies-convicted-while-a-judge.html [https://

perma.cc/54JM-EFDA].

26. See Peter Liebhold, Preston Tucker’s Sedan: Showcasing a Beautiful

Business Failure, Nat’l Museum of Am. Hist.: Stories from the

Museum (Aug. 10, 2016), https://americanhistory.si.edu/blog/preston-

tuckers-sedan-showcasing-beautiful-business-failure [https://perma.cc/

X3XH-HXCN].

27. See Tucker: The Man and His Dream (Lucasfilm Ltd. 1988); see also

Warren et al., supra note 25 (describing the film and the company’s

automobile-production numbers).

28. Chris Isidore & Jethro Mullen, Elon Musk Says the SEC is Trying To

Trample on His Freedom of Speech, CNN Bus. (Mar. 11, 2019),

https://www.cnn.com/2019/03/11/tech/elon-musk-deadline-sec/index.html

[https://perma.cc/5ZGD-V8CV].

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shareholder value.

Instead, Musk and Tesla settled with the SEC.

exchange for allowing him to continue as Tesla’s CEO, Musk forfeited

his First Amendment rights by agreeing to submit his tweets to an

undefined oversight process at Tesla that would ensure the tweets

conformed to SEC speech mandates before their publication.

Musk was unrepentant after settling the SEC charges, as reflected

in a tweet in which he derided the SEC for failing to protect Tesla

shareholders from attacks by short-sellers.

Musk sarcastically asserted

that the SEC’s acronym actually stands for the “Shortseller Enrichment

Commission” and that it was “doing incredible work” in aiding those

traders.

Musk also revealed on national television that no one at Tesla

29. See Irina Ivanova, SEC Fraud Suit Against Elon Musk Threatens to

Unravel Tesla, CBS News (Sept. 28, 2018, 6:38 PM), https://www.cbsnews

.com/news/secs-fraud-suit-against-elon-musk-threatens-to-unravel-tesla/

[https://perma.cc/T6G9-33RA] (describing “investor uncertainty over

Musk's future at the company” and Tesla’s $20 billion loss in market

value since Musk’s August 2018 tweet).

30. Elon Musk Settles SEC Fraud Charge; Tesla Charged With and Resolves

Securities Law Charge, SEC (Sept. 29, 2018), https://www.sec.gov/news/

press-release/2018-226 [https://perma.cc/93Z6-TEVJ].

31. Id. Musk and Tesla each agreed to pay a $20 million fine, which were to

be distributed to shareholders purportedly harmed by Musk’s tweet. Musk

also agreed to resign from his position as chairman of the Tesla board. Id.

32. See generally Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Manning,

136 S. Ct. 1562, 1566 (2015) (describing short-sale transactions). Short

sellers arouse the ire of Musk because they benefit from stock-price

declines that result from, among other things, publication of criticism and

bad news about a public company. See Lawrence Delevingne, Short &

Distort? The Ugly War Between CEOs and Activist Critics, Reuters

(Mar. 21, 2019, 1:07 AM), https://www.reuters.com/article/us-usa-

stocks-shorts-insight/short-distort-the-ugly-war-between-ceos-and-activist-

critics-idUSKCN1R20AW [https://perma.cc/T8CR-NMLT]. Through his

tweets, Musk tried to counter short-sellers of Tesla stock and his critics

in the mainstream media and elsewhere, but he is now muzzled from doing

so by the SEC injunction. See David Ingram, Elon Musk Taunts SEC as

‘Shortseller Enrichment Commission’, NBC News (Oct. 4, 2018, 4:36

PM), https://www.nbcnews.com/tech/tech-news/elon-musk-taunts-sec-

shortseller-enrichment-commission-n916816 [https://perma.cc/N7BJ-Y9L6].

But see Bill Alpert, Tesla CEO Elon Musk is Wrong About Short Sellers,

Barron’s (Oct. 15, 2018), https://www.barrons.com/articles/why-elon-

musk-is-wrong-about-short-sellers-1539384687 [https://perma.cc/U45W-

DPBN] (describing the economic role of short sellers); Jerry W.

Markham & Thomas Lee Hazen, Broker-Dealer Operations Under

Securities and Commodities Laws §§ 9:7, .50, Westlaw (updated Nov.

2018) (describing criticism of the SEC’s prior efforts to curb short selling

and the adverse market effects of those efforts).

33. Tim Higgins & Gabriel T. Rubin, Elon Musk Tweet Mocks the Securities

and Exchange Commission, Wall St. J. (Oct. 4, 2018, 11:50 PM),

https://www.wsj.com/articles/elon-musk-tweet-appears-to-mock-the-

securities-and-exchange-commission-1538685320 [https://perma.cc/

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Securities & Exchange Commission vs. Elon Musk & the First Amendment

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was reviewing his tweets, stating: “I want to be clear. I do not respect

the SEC.”

Less than six months after its initial complaint, the SEC initiated

a contempt order against Musk.

The subject of the contempt pro–

ceeding was a Musk tweet, which stated that Tesla would make around

500,000 cars in 2019.

This was an increase of 100,000 cars over an

earlier projection by the company.

Musk corrected that tweet a few

hours later by stating that Tesla would deliver 400,000 cars in 2019,

but that it would be producing at a rate of 500,000 cars per year at

year-end.

Nonetheless, the SEC sought a contempt citation because

Musk’s tweets had not received prior approval from Tesla, a step the

SEC claimed was required by the prior settlement agreement.

Within

one day Musk tweeted that the SEC’s action against him had harmed

Tesla shareholders by pushing Tesla’s stock price down, and he charged

that “[s]omething is broken with SEC oversight.”

He further argued

V3B7-4MNT].

34. Alan Ohnsman, Judge Says SEC Can Have a Crack at Statements by Elon

Musk’s Lawyers, Forbes (Mar. 12, 2019, 4:38 PM), https://www.forbes.com/

sites/alanohnsman/2019/03/12/judge-oks-sec-request-to-respond-to-musk-

lawyers-assertions-in-tesla-case-or/#47be26ad74ad [https://perma.cc/

AWA8-ULY8].

35. See Russ Mitchell, Elon Musk Keeps Slamming the SEC on Twitter. He

has 2 Weeks to Respond in Court, L.A. Times (Feb. 26, 2019, 5:50 PM),

https://www.latimes.com/business/la-fi-hy-elon-musk-sec-20190226-

story.html [https://perma.cc/BDX2-A7EK].

36. Id.

37. Neal Boudette, S.E.C. Asks Court to Hold Tesla’s Elon Musk in Contempt

for Twitter Post on Production, N.Y. Times (Feb. 25, 2019), https://

www.nytimes.com/2019/02/25/business/elon-musk-contempt-tweet-sec-

tesla.html [https://perma.cc/4VTE-YF9A].

38. Id.; see also Alexandria Sage, SEC Seeks Contempt Charge Against

Tesla’s Musk, Says Tweet Violates Deal, Reuters (Feb. 25, 2019, 6:31

PM), https://www.reuters.com/article/us-tesla-musk-sec/sec-seeks-contempt-

charge-against-teslas-musk-says-tweet-violates-deal-idUSKCN1QE2OR

[https://perma.cc/CNK5-MGTS].

39. SEC’s Motion and Memorandum of Law in Support of an Order to Show

Cause at 1–2, SEC v. Musk, No. 1:18-cv-8865-AJN-GWG (S.D.N.Y. Feb.

25, 2019), ECF No. 18; see also Elon Musk Never Sought Approval for a

Single Tesla Tweet, U.S. SEC Tells Judge, Reuters (Mar. 18, 2019, 8:25

PM), https://www.reuters.com/article/us-tesla-musk-sec/elon-musk-never-

sought-approval-for-a-single-tesla-tweet-u-s-sec-tells-judge-idUSKCN1R001J

[https://perma.cc/GS46-YANP].

40. Elon Musk (@elonmusk), Twitter (Feb. 26, 2019, 7:35 AM), https://

twitter.com/elonmusk/status/1100371207491248128 [https://perma.cc/

FHL7-89WP]; see also Robert Ferris, Elon Musk Lashes Out: “Something

is Broken With SEC Oversight”, CNBC (Feb. 26, 2019, 8:59 AM),

https://www.cnbc.com/2019/02/26/elon-musk-lashes-out-something-is-

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that the First Amendment protected his tweets and that the company

had already publicly announced the substance of his message.

The judge hearing the SEC contempt motion ordered the parties to

seek a settlement.

A law school professor then publicly advocated

imposing more explicit and defined prior restraints on Musk’s speech,

i.e., that Musk’s tweets, before their dissemination, be reviewed by an

attorney versed in SEC censorship requirements who would act as the

SEC’s “baby sitter” for Musk.

That was the course the parties took

through an amended settlement agreement in which Musk agreed to

submit his tweets for review and prior approval by an “experienced

broken-with-sec-oversight.html [https://perma.cc/2GVU-XMKA] (describing

the timing of Musk’s tweet and his view that the SEC harmed Tesla

shareholders); Mitchell, supra note 35. Despite his criticism of the SEC,

Musk is conflicted over whether SEC regulation bestows a benefit. On the

one hand, he advised SpaceX employees that cashing in their stock and

option grants through a public offering was a bad idea because of SEC

regulations and market flaws. See Vance, supra note 7, at 259–60. On

the other hand, Musk claimed that Tesla was different from SpaceX

because Tesla was forced to go to the public market in order to raise

much-needed capital. See id. at 290. This ambivalence surfaced again after

the conclusion of the SEC’s contempt proceedings against Musk, and after

Tesla reported a large quarterly loss. Tesla then made a successful public

offering of stock and bonds totaling $2.3 billion. Sam Goldfarb & Allison

Prang, Tesla Completes $2.35 billion Stock and Bond Sale, Wall St. J.

(May 3, 2019), https://www.wsj.com/articles/tesla-seeks-raise-as-much-as-

2-7-billion-up-from-2-3-billion-11556886130 [https://perma.cc/9VS7-VZBC].

41. Response to Order to Show Cause Why Defendant Elon Musk Should Not

be held in Contempt for Violating the Court’s Final Judgment at 3, SEC

v. Musk, No. 1:18-cv-8865-AJN-GWG (S.D.N.Y. Mar. 11, 2019), ECF No.

27. Musk’s lawyers argued in the SEC contempt proceeding that the

injunction against Musk was an impermissible prior restraint that violated

the First Amendment. Id. at 21–25. The SEC contended that Musk

waived his First Amendment rights when he agreed to the court’s

injunction, a claim that was rebutted by Musk’s lawyers. Id. at 20; see

also SEC’s Reply Memorandum to Defendant Elon Musk’s Response to

Order to Show Cause at 12, SEC v. Musk, No. 1:18-cv-8865-AJN-GWG

(S.D.N.Y. Mar. 18, 2019), ECF No. 30. The court did not resolve this

issue because the parties agreed on a settlement of the contempt issue.

See infra notes 42–48 and accompanying text (describing the settlement).

42. The judge ordered the parties to “put their reasonableness pants on” to

reach a compromise. See Dave Michaels & Tim Higgins, Judge Gives Elon

Musk, SEC Two Weeks to Strike Deal on Contempt Claims, Wall St.

J. (Apr. 4, 2019, 7:22 PM), https://www.wsj.com/articles/judge-asks-elon-

musk-and-sec-to-hold-talks-over-contempt-claims-11554408620 [https://

perma.cc/W2D9-HNA9].

43. John C. Coffee, Jr., How the SEC Can Be the Babysitter Elon Musk Needs,

CNN Bus. (Apr. 23, 2019, 5:25 PM), https://www.cnn.com/2019/04/23/

perspectives/tesla-elon-musk-sec/index.html [https://perma.cc/5FHZ-

2VSL].

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securities lawyer,”

who was quickly given the derisive sobriquet of

“Twitter sitter.”

This settlement was considered to be another victory for Musk

because he was allowed to continue in his role as Tesla’s CEO and no

further sanctions were ordered.

Nevertheless, it was a loss for First

Amendment–protected speech. Anyone dealing with corporate lawyers

on SEC disclosure issues knows that such review is a time-consuming

process that can take days or even weeks. Rather than submit to that

ordeal, and as a direct result of the SEC injunction, Musk self-censored

the volume and content of his tweets.

As his attorneys advised the

court during the SEC contempt proceeding, Musk was tweeting half as

often as he did before the SEC injunction.

44. Dave Michaels, Judge Approves Deal Spelling Out Oversight of Elon

Musk’s Tweets, Wall St. J. (Apr. 30, 2019, 9:04 PM), https://www.

wsj.com/articles/judge-approves-deal-spelling-out-oversight-of-elon-musks-

tweets-11556669333 [https://perma.cc/F65X-MVQR]. The long laundry

list of topics subject to this prior restraint included financial information

about the company, new products, sales numbers, and production figures.

Dave Michaels & Tim Higgins, Musk, SEC Reach Deal to End Court Fight

Overt Tesla CEO’s Tweets, Wall St. J. (Apr. 26, 2019, 6:33 PM),

https://www.wsj.com/articles/elon-musk-sec-propose-deal-to-end-latest-

court-fight-over-tesla-ceos-tweets-11556314495 [https://perma.cc/4GPF-

4TE8]; Dana Hull & Benjamin Bain, Elon Musk’s Mystery Twitter Sitter

Has One Wild and Crazy Job, Bloomberg (Feb. 26, 2019, 3:35 PM),

https://www.bloomberg.com/news/articles/2019-02-26/elon-musk-s-mystery-

twitter-sitter-has-one-wild-and-crazy-job [https://perma.cc/5PNH-CJM2].

45. Hull & Bain, supra note 44.

46. Bob Van Voris & Dana Hull, Musk, SEC Settle Legal Fight Over His

Tweets About Tesla, Bloomberg (Apr. 27, 2019, 10:49 AM), https://

www.bloomberg.com/news/articles/2019-04-26/musk-sec-settle-legal-

fight-over-his-tweets-about-tesla-juykzbwq [https://perma.cc/3KJU-RR5T].

47. See infra note 48 and accompanying text.

48. See Drew Harwell, Elon Musk’s Defense of his Tesla Tweets ‘Borders on

the Ridiculous,’ Says SEC, Wash. Post (Mar. 19, 2019, 7:56 AM),

https://www.washingtonpost.com/technology/2019/03/19/elon-musks-

defense-his-tesla-tweets-is-flawed-sec-says/?utm_term=.63a52de720cd.

[https://perma.cc/HXG5-F7ZL]. Further illustrating the effects of the

SEC injunction is the advice given to Musk by Mark Cuban, the brash

and outspoken owner of the Dallas Mavericks who successfully fought SEC

charges of insider trading. Despite that victory, Cuban advised that, in

order to avoid further SEC retaliation, Musk had to “try to bite [his]

tongue no matter how hard it is, because [the SEC] do[es]n’t care.” Aarthi

Swaminathan, Mark Cuban Told Elon Musk to ‘Bite Your Tongue’ in

Dealings with SEC, Yahoo Finance (May 29, 2019), https://finance

.yahoo.com/news/mark-cuban-elon-musk-sec-200719978.html [https://

perma.cc/VWD7-Y5R9]. Cuban added, “[W]hen you’ve got a bunch of

bureaucrats trying to come at you in a world where there aren’t bright

line guidelines, that’s tough.” Id.

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II. The First Amendment and “Commercial Speech”

The First Amendment allows citizens to advocate controversial

changes in society without submitting to government censorship or

control.

Its purpose is “to preserve an uninhibited marketplace of ideas

in which truth will ultimately prevail.”

In that marketplace, even false

statements count as protected speech.

As a means of reaching the

truth, protecting one’s freedom to make false statements may, at first,

seem incongruous. As the United States Supreme Court recognized,

however, in United States v. Alvarez, “some false statements are

inevitable if there is to be an open and vigorous expression of views in

public and private conversation, expression the First Amendment seeks

to guarantee.”

The Court further opined: “The remedy for speech that

is false speech is speech that is true. This is the ordinary course in a

free society. The response to the unreasoned is the rational; to the

uninformed, the enlightened; to the straight-out lie, the simple truth.”

The First Amendment bans prior restraints on protected speech,

including court-ordered injunctions.

Government actions inducing self-

censorship of protected speech are also prohibited.

“Whenever an

individual . . . engages in self-censorship, the values of the First Am–

49. See Abrams v. United States, 250 U.S. 616, 630 (1919) (Holmes, J.,

dissenting).

50. FCC v. League of Women Voters of Cal., 468 U.S. 364, 377 (1984)

(quoting Red Lion Broad. Co. v. FCC, 395 U.S. 367, 390 (1969)).

51. See United States v. Alvarez, 567 U.S. 709, 718 (2012).

52. Id.

53. Id. at 727.

54. See Near v. Minnesota ex rel. Olson, 283 U.S. 697, 701, 713–19 (1931)

(newspapers containing “malicious, scandalous and defamatory” articles

could not be enjoined from publication). The Second Circuit has noted:

A “prior restraint” on speech is a law, regulation or judicial order

that suppresses speech—or provides for its suppression at the

discretion of government officials—on the basis of the speech’s

content and in advance of its actual expression. It has long been

established that such restraints constitute “the most serious and

the least tolerable infringement” on our freedoms of speech and

press. Indeed, the Supreme Court has described the elimination of

prior restraints as the “chief purpose” of the First Amendment.

Any imposition of a prior restraint, therefore, bears “a heavy

presumption against its constitutional validity.” . . . A prior

restraint is not constitutionally inoffensive merely because it is

temporary.

United States v. Quattrone, 402 F.3d 304, 309–10 (2d Cir. 2005) (citations

omitted).

55. Gertz v. Robert Welch, Inc., 418 U.S. 323, 340 (1974) (describing the

dangers of government-induced self-censorship).

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endment are compromised, because the public is denied information or

ideas.”

First Amendment jurisprudence is “designed to prevent self-

censorship premised on fear of governmental sanctions against ex–

pression.”

The First Amendment additionally protects against speech com–

pelled by the government.

That is, “the First Amendment guarantees

‘freedom of speech,’ a term necessarily comprising the decision of both

what to say and what not to say.”

This includes such things as

requiring students to stand and salute the flag

and compulsory union

dues used for purposes that government employees do not support.

The Supreme Court has further held that requiring the baking of a cake

for a same-sex wedding may violate the cakemaker’s First Amendment–

protected religious beliefs.

Of course, the First Amendment’s right of free speech is not

unlimited in scope. The Constitution does not protect those who falsely

shout “fire” in a crowded theatre,

or those whose speech presents a

clear and present danger of inciting unlawful activities.

Nevertheless,

56. Robert A. Sedler, Self-Censorship and the First Amendment, 25 Notre

Dame J.L. Ethics & Pub. Pol’y 13 (2012).

57. Id.

58. See Janus v. Am. Fed’n of State, Cty., & Mun. Emps., 138 S. Ct. 2448,

2464 (2018) (“[M]ost of our free speech cases have involved restrictions on

what can be said, rather than laws compelling speech. But measures

compelling speech are at least as threatening.”).

59. Riley v. Nat’l Fed’n of the Blind of N.C., Inc., 487 U.S. 781, 796–97 (1988)

(requiring disclosures by charitable fundraisers regarding how the donated

funds were used violated First Amendment); see also Village of

Schaumberg v. Citizens for a Better Env’t, 444 U.S. 620, 636 (1980)

(invalidating on First Amendment grounds an ordinance restricting the

type of persons that could solicit charitable contributions).

60. W. Va. State Bd. of Educ. v. Barnette, 319 U.S. 624, 642 (1943).

61. Janus, 138 S. Ct. at 2486.

62. Masterpiece Cakeshop, Ltd. v. Colo. Civil Rights Comm’n, 138 S. Ct.

1719, 1723–24 (2018).

63. Schenck v. United States, 249 U.S. 47, 52 (1919).

64. See Brandenburg v. Ohio, 395 U.S. 444, 447 (1969) (First Amendment

protects advocacy of the use of force or a violation of the law, “except

where such advocacy is directed to inciting or producing imminent lawless

action and is likely to incite or produce such action”); Giboney v. Empire

Storage & Ice Co., 336 U.S. 490, 498 (1949) (rejecting the argument that

the “constitutional freedom of speech . . . extends its immunity to speech

or writing used as an integral part of conduct in violation of a valid

criminal statute”). But see N.Y. Times, Co. v. United States, 403 U.S.

713 (1971) (the classification as secret of a Defense Department’s Vietnam

War study did not justify a prior-restraint injunction against its publication

by the press).

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government regulations that affect speech’s contents or viewpoints are

subject to “strict” scrutiny by the courts.

This means, among other

things, that a statute that regulates speech based on content “must be

narrowly tailored to promote a compelling Government interest. If a

less restrictive alternative would serve the Government’s purpose, the

legislature must use that alternative.”

Difficult and complex delineations are drawn between protected

and unprotected speech. For example, libel and slander proceedings

may be brought where private individuals are the subjects of false

statements.

In contrast, damages may be awarded only under limited

circumstances where the target of a false statement is a public figure.

The government may also impose reasonable, but “very limited,”

restrictions on the time, place, and manner of speech in public for–

ums.

Such restrictions, however, must be “justified without reference

to the content of the regulated speech, . . . narrowly tailored to serve a

significant governmental interest, and . . . leave open ample alternative

channels for communication of the information.”

The government may require a license where a benefit is bestowed,

but it cannot deny a license on grounds that are “viewpoint” based.

Viewpoint discrimination “is an ‘egregious form of content discrim–

ination’ and is ‘presumptively unconstitutional.’”

Viewpoint protec–

tion, for example, precludes the denial of a trademark license for marks

that “disparage” any person, “living or dead.”

The government also

cannot deny a trademark for matters that are “immoral or “scandal–

65. See United States v. Playboy Entm’t Grp., 529 U.S. 803, 813–14 (2000).

66. Id. at 813.

67. See Gertz v. Robert Welch, Inc., 418 U.S. 323, 341 (1974).

68. See N.Y. Times Co. v. Sullivan, 376 U.S. 254, 279–80 (1964).

69. McCullen v. Coakley, 573 U.S. 464, 477 (2014).

70. Id. (quoting Ward v. Rock Against Racism, 491 U.S. 781, 791 (1989)); see

also Bolger v. Youngs Drug Prods. Corp., 463 U.S. 60, 75 (1983)

(invalidating Postal Service regulations that prohibited mailing unsolicited

advertisements for contraceptives); Lovell v. City of Griffin, 303 U.S. 444,

451 (1938) (holding as unconstitutional an ordinance that required a

permit to distribute literature).

71. See Iancu v. Brunetti, 139 S. Ct. 2294, 2299 (2019).

72. Id. (quoting Rosenberger v. Rector & Visitors of Univ. of Va., 515 U.S.

819, 829–30 (1995)).

73. Matal v. Tam, 137 S. Ct. 1744, 1765 (2017) (Kennedy, J., concurring)

(quoting 15 U.S.C. § 1052(a) (2012)).

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353

ous.”

Moreover, it is a “bedrock” First Amendment principle that the

government cannot deny a license to “ideas that offend.”

The so-called commercial-speech doctrine has historically been the

broadest exception to the application of full First Amendment speech

protections. For example, in Valentine v. Chrestensen,

the Supreme

Court stated that, although the First Amendment protects political

speech from government regulation, it is “equally clear that the

Constitution imposes no such restraint on government as respects

purely commercial advertising.”

The Supreme Court has defined

commercial speech as a communication that “does no more than

propose a commercial transaction”

and is “related solely to the

economic interests of the speaker and its audience.”

The Supreme Court’s harsh view of the value of commercial speech

has leavened over time. In Virginia State Board of Pharmacy v.

Virginia Citizens Consumer Council, Inc.,

the Court recognized that

a “consumer’s interest in the free flow of commercial inform–

ation . . . may be as keen, if not keener by far, than his interest in the

day’s most urgent political debate.”

Society “may have a strong

interest in the free flow of commercial information. Even an individual

advertisement, though entirely ‘commercial,’ may be of general public

74. Iancu, 139 S. Ct. at 2302.

75. Id. at 2299 (quoting Matal, 137 S. Ct. at 1751).

76. 316 U.S. 52 (1942).

77. Id. at 54.

78. United States v. United Foods, Inc., 533 U.S. 405, 409 (2001).

79. Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of N.Y., 447 U.S.

557, 561 (1980).

80. 425 U.S. 748 (1976).

81. Id. at 763.

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interest.”

Among other things, this meant that advertising retail

alcohol beverage prices could not be banned.

In Sorrell v. IMS Health,

the Supreme Court gave First

Amendment protection to commercial information-gathering activities.

The Court noted that “[w]hile the burdened speech results from an

economic motive, so too does a great deal of vital expression.”

This

means that professionals licensed by a state cannot be required to make

compelled speech disclosures to consumers, absent a strong reason.

The First Amendment also protects corporations when they are

carrying out political activities even if those acts are commercial in

nature.

Compounding the analysis of the commercial-speech exception is

the fact that such speech may be mixed with political speech that would

otherwise receive full First Amendment protection. The Supreme Court

has asserted that, in such cases, it does not believe that “speech retains

82. Id. at 764–65. The Court further observed that:

Advertising, however tasteless and excessive it sometimes may

seem, is nonetheless dissemination of information as to who is

producing and selling what product, for what reason, and at what

price. So long as we preserve a predominantly free enterprise

economy, the allocation of our resources in large measure will be

made through numerous private economic decisions. It is a matter

of public interest that those decisions, in the aggregate, be

intelligent and well informed. To this end, the free flow of

commercial information is indispensable.

Id. at 765. The Court noted that First Amendment protection has been

given to commercial speech concerning such things as advertisements for

abortion referrals; claims that a manufacturer’s sale of artificial fur was a

desirable alternative to the killing of animals; and claims that consumers

should prefer a domestic producer because it provided American jobs. Id.

at 764 (citing Bigelow v. Virginia, 421 U.S. 809 (1975); Fur Info. &

Fashion Council, Inc., v. E.F. Timme & Son, Inc., 364 F. Supp. 16

(S.D.N.Y. 1973); Chi. Joint Bd., AFL-CIO v. Chi. Trib. Co., 435 F.2d

470 (1970)).

83. Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 489 (1996).

84. 564 U.S. 552 (2011).

85. Id. at 567.

86. Nat’l Inst. of Family & Life Advocates v. Becerra, 138 S. Ct. 2361, 2375

(2018) (state could not mandate “professional” speech dealing with

abortion services).

87. Citizens United v. Fed. Election Comm’n, 558 U.S. 310, 372 (2009)

(protecting under the First Amendment a video political advertisement

critical of presidential candidate, Hillary Clinton).

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355

its commercial character when it is inextricably intertwined with

otherwise fully protected speech.”

Still, the Supreme Court continues to recognize a commercial

speech exception. In Ohralik v. Ohio State Bar Association,

the Court

observed that it had not discarded the “‘common-sense’ distinction

between speech proposing a commercial transaction . . . and other

varieties of speech.”

This commercial-speech exception has allowed

“modes of regulation that might be impermissible in the realm of

noncommercial expression.”

The Court stated that it could cite

“[n]umerous examples . . . of communications that are regulated

without offending the First Amendment, such as the exchange of

information about securities, [and] corporate proxy statements,” which

are regulated by the SEC.

In Central Hudson Gas & Electric Corp. v. Public Service

Commission,

the Supreme Court held that, although it “rejected the

‘highly paternalistic’ view that government has complete power to

suppress or regulate commercial speech,”

the Constitution “accords a

lesser protection to commercial speech than to other constitutionally

guaranteed expression. The protection available for particular commer–

cial expression turns on the nature both of the expression and of the

governmental interests served by its regulation.”

Misleading commer–

cial speech will not receive First Amendment protection. That is, “the

government may ban forms of communication more likely to deceive

the public than to inform it.”

88. Riley v. Nat’l Fed’n of the Blind of N.C., Inc., 487 U.S. 781, 796 (1998);

see also Bd. of Trs. of the State Univ. of N.Y. v. Fox, 492 U.S. 469 (1989)

(stating that courts must consider whether speech is both commercial and

noncommercial).

89. 436 U.S. 447 (1978).

90. Id. at 455–56.

91. Id. at 456; see also State Univ. of N.Y. v. Fox, 492 U.S. at 477.

92. Ohralik, 436 U.S. at 455–56; see also Ibanez v. Fla. Bd. of Accountancy,

512 U.S. 136 (1994) (describing limitations on governmental restrictions

on advertising by professionals); Bates v. State Bar of Ariz., 433 U.S. 350

(1977) (rejecting a blanket prohibition of attorneys’ advertising speech).

93. 447 U.S. 557 (1980).

94. Id. at 562. The Court further stated: “Commercial expression not only

serves the economic interest of the speaker, but also assists consumers and

furthers the societal interest in the fullest possible dissemination of

information.” Id. at 561–62.

95. Id. at 563.

96. Id.; see also Lorillard Tobacco Co. v. Reilly, 533 U.S. 525 (2001)

(analyzing commercial tobacco advertising restrictions in light of the First

Amendment).

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The Central Hudson opinion set forth a four-part test to govern the

First Amendment’s application to commercial speech: (1) protected

commercial speech must involve lawful activity and not be misleading;

(2) the government must have a “substantial” interest in regulating the

speech; (3) the regulation must “directly advance[]” that interest; and

(4) the government’s regulation must not be broader than necessary to

carry out its interest

(e.g., government mandated warnings or

disclaimers are a preferable alternative to the suppression of speech).

In applying that test in Edenfield v. Fane,

the Supreme Court

noted that:

The commercial marketplace, like other spheres of our social and

cultural life, provides a forum where ideas and information

flourish. Some of the ideas and information are vital, some of

slight worth. But the general rule is that the speaker and the

audience, not the government, assess the value of the information

presented. Thus, even a communication that does no more than

propose a commercial transaction is entitled to the coverage of

the First Amendment.

100

Nevertheless, the Court in Edenfield stated that “our cases make

clear that the State may ban commercial expression that is fraudulent

or deceptive without further justification.”

101

III. The SEC and the First Amendment

A. The Core Mission of the SEC is to Compel and Censor Commercial

Speech

The SEC’s compelled-speech and licensing requirements seek to

protect investors from false or deceptive information

102

and to allow

97. Central Hudson, 447 U.S. at 566.

98. Id. at 565; see also Citizens United v. Fed. Election Comm’n, 558 U.S.

310, 319 (2009) (“The Government may regulate corporate political

speech through disclaimer and disclosure requirements, but it may not

suppress that speech altogether.”).

99. 507 U.S. 761 (1993).

100. Id. at 767.

101. Id. at 768–69.

102. The SEC has stated that a principal purpose of the federal securities laws

is to assure that companies publicly selling securities “must tell the public

the truth about their businesses, the securities they are selling, and the

risks involved in investing. What We Do, Secs. & Exch. Comm’n,

https://www.sec.gov/Article/whatwedo.html [https://perma.cc/4946-

5MRW] (last modified June 10, 2013).

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them to make informed investment decisions.

103

In carrying out that

mission, the federal securities laws impose licensing requirements and

compulsory speech mandates on public companies

104

by requiring those

companies to publish information about their finances and operations.

105

The SEC, in various ways, also censors the speech of executives at

public companies.

106

Both the federal securities laws and SEC regulations require the

disclosure of “material” facts about a public company that a reasonable

investor would want to consider in making an investment decision.

107

These disclosure requirements are implemented through detailed SEC

103. Id. (“The laws and rules that govern the securities industry in the United

States derive from a simple and straightforward concept: all investors,

whether large institutions or private individuals, should have access to

certain basic facts about an investment prior to buying it, and so long as

they hold it. To achieve this, the SEC requires public companies to

disclose meaningful financial and other information to the public. This

provides a common pool of knowledge for all investors to use to judge for

themselves whether to buy, sell, or hold a particular security. Only

through the steady flow of timely, comprehensive, and accurate information

can people make sound investment decisions.”).

104. The licensing requirements for public companies are found in the

Securities Act of 1933, 15 U.S.C. §§ 77f–77g (2012), and the Securities

Exchange Act of 1934, 15 U.S.C. § 78l (2012).

105. See infra Part III.G–K. The SEC’s speech censorship is premised on the

theory that its licensing and speech mandates bestow a benefit because

they “facilitate capital formation.” See About the SEC, Secs. & Exch.

Comm’n, https://www.sec.gov/about.shtml (last modified Nov. 22, 2016)

[https://perma.cc/7FBP-E32D]. But there is some question as to whether

those regulations fulfill that mission. See Frank Holmes, The Public Pool

of Publicly Traded Stocks is Shrinking. Here’s What Investors Can Do,

Forbes (Aug. 13, 2018, 12:25 PM), https://www.forbes.com/sites/

greatspeculations/2018/08/13/the-pool-of-publicly-traded-stocks-is-shrinking-

heres-what-investors-can-do/#39bab8042078 [https://perma.cc/U5PC-

XMA5] (“[T]he number of publicly listed companies in the U.S. has fallen

steadily since 1997. More companies have delisted, in fact, than gone

public in every year of the past 20 years except one, 2013.”).

106. See infra Part III.F.

107. See, e.g., Basic Inc. v. Levinson, 485 U.S. 224, 230 (1988); TSC Indus.,

Inc. v. Northway, Inc., 426 U.S. 438, 440 (1976); Matrixx Initiatives v.

Siracusano, 563 U.S. 27, 37 (2011).

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regulations and forms, such as forms SK,

108

10-K,

109

10-Q,

110

and 8-K.

111

Those forms require a company to make financial disclosures before it

can be registered (licensed) by the SEC and the company must update

those disclosures on a quarterly and annual basis and when unusual

events occur.

112

The SEC’s disclosure requirements and sanctions are

ever-expanding, increasingly onerous, and have led to severe civil and

criminal prosecutions that resulted in injunctions restricting speech,

long prison terms, large fines, and lifetime employment debarments.

113

The following subsections of this Article describe some areas of SEC

regulation that raise First Amendment concerns in the application of

the commercial-speech exception. Although jurisprudence on this

subject is surprisingly limited, there is case law that provides guidance

on the limits of SEC censorship regarding some speech content.

114

other areas, the application of the commercial-speech exception remains

uncertain.

B. SEC Licensing Requirements and the Financial Press

In Lowe v. SEC,

115

the defendants were charged with publishing an

investment advisory newsletter without being licensed under the

Investment Advisers Act of 1940.

116

This action, which would have

otherwise been a fundamental abridgement of free speech, was brought

by the SEC under the guise of regulating “potentially deceptive

108. See 17 C.F.R. § 229.101 (2019).

109. Form 10-K, Secs. & Exch. Comm’n, https://www.sec.gov/about/forms/

form10-k.pdf [https://perma.cc/FK5J-TTKS] (last updated May 2019).

110. Form 10-Q, Secs. & Exch. Comm’n, https://www.sec.gov/files/form10-

q.pdf [https://perma.cc/M7WP-AQWJ] (last updated May 2019).

111. Form 8-K, Secs. & Exch. Comm’n, https://www.sec.gov/files/form8-

k.pdf [https://perma.cc/R4EH-SQL4] (last updated May 2019).

112. Exchange Act Reporting and Registration, Secs. & Exch. Comm’n,

https://www.sec.gov/smallbusiness/goingpublic/exchangeactreporting

(last modified Oct. 24, 2018) [https://perma.cc/GJ9H-6EZG]. The

completion of these forms requires thousands of hours of work by company

employees, accountants, and lawyers. For example, the SEC estimates

that it takes on average some 2,400 hours of work to complete an annual

report on Form 10-K. See Form 10-K, supra note 109.

113. See generally Jerry W. Markham, A Financial History of Modern

U.S. Corporate Scandals from Enron to Reform (2006) (describing

the SEC’s expansion of its enforcement role and increased punishments

for offenders).

114. See Karl M. F. Lockhart, A ‘Corporate Democracy’?: Freedom of Speech

and the SEC, 104 Va. L. Rev. 1593, 1624–27 (2018) (describing application

of the First Amendment to SEC regulations).

115. 472 U.S. 181 (1985).

116. Id. at 183; 15 U.S.C. § 80b-3(c) (2012).

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commercial speech.”

117

The Supreme Court was able to avoid giving a

direct answer to the question of whether the defendants were actually

publishing protected First Amendment speech. Instead, the Court held

that the defendants fell within a registration exemption in the Invest–

ment Advisers Act, which was applicable to “the publisher of any bona

fide newspaper, news magazine or business or financial publication of

general and regular circulation.”

118

In justifying a broad application of that exemption, the Court

pointed to its previous decision in Lovell v. City of Griffin,

119

where it

held that prior restraints and licensing requirements for the exercise of

speech “strike[] at the very foundation of the freedom of the press.”

120

The Court then noted that Congress explicitly considered its Lovell

decision when passing the Investment Advisers Act. Apropos of Elon

Musk’s tweets, the Court also concluded that, when enacting that Act,

Congress was specifically concerned with fraud and deception in the

context of “personalized communications.”

121

Therefore, the Court

reasoned, Congress did not intend to regulate publications generally

sold to the public containing factual information and market comment–

ary.

122

117. Lowe, 472 U.S. at 187 (quoting SEC v. Lowe, 725 F.2d 892, 901 (2d Cir.

1984)).

118. 15 U.S.C. § 80b-2(a)(11)(D) (2012). The SEC brought a number of similar

cases against unregistered investment advisory newsletters while it was

prosecuting the defendants in Lowe. See Stacy P. Thompson, Lowe v.

SEC: Investment Advisers Act of 1940 Clashes with First Amendment

Guarantees of Free Speech and Press, 21 U. Rich. L. Rev. 201, 216 n.68

(1986). The author was defense counsel in one such case: SEC v. Financial

News Associates, No. 84-0878-A, 1985 WL 25023 (E.D. Va. Apr. 26,

1985), vacated, 1985 U.S. Dist. LEXIS 20386 (June 21, 1985). See also

Secs. & Exch. Comm’n, News Digest, May 3, 1985, at 1, available at

https://www.sec.gov/news/digest/1985/dig050385.pdf [https://perma.cc/

23Z8-GRUL]. There, the SEC alleged that an unregistered newsletter was

a complete scam because it falsely claimed that former officials in

government intelligence organizations, such as the CIA in the U.S. and

the Mossad in Israel, generated its investment advice. Fin. News Assocs.,

1985 WL 25023, at *1–5. After a trial, the district court ruled against the

defendants and entered injunctions. Id. at *14. Following the Lowe

decision, the district court withdrew its decision, and injunctions were

lifted, including one entered by consent before the trial. See SEC v. Fin.

News Assocs., No. 84-0878-A, 1985 U.S. Dist. LEXIS 20386, at *1 (E.D.

Va. June 21, 1985).

119. 303 U.S. 444 (1938).

120. Lowe, 472 U.S. at 205 (quoting Lovell, 303 U.S. at 451) (footnotes and

citations omitted).

121. Id. at 210.

122. Id.

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C. Effect of Disclaimers on SEC Censorship Requirements

As described in Part II of this Article, the Supreme Court has

directed that disclaimers and warnings are the preferred means of

regulating commercial speech in lieu of its suppression. Courts have

considered the relation of disclaimers to both the SEC’s commercial-

speech regulation and its antifraud rules, albeit not with the First

Amendment in mind.

123

Public companies and their executives are often

called upon to give their projections of their company’s future perform–

ance. An example of such a projection is the one Musk made on Twitter

regarding Tesla’s delivery and production goals, the same tweets that

were the subject of the SEC contempt proceeding.

124

In In re Donald J. Trump Securities Litigation,

125

the United States

Third Circuit Court of Appeals noted that several federal courts had

dismissed securities law–fraud claims concerning projections on the

grounds of a “bespeaks caution” doctrine.

126

This doctrine posits that

cautionary language in offering documents can negate the materiality

of an omission or misrepresentation.

127

There were several such warnings

in the offering materials in Trump with respect to the company’s

revenue projections from its casino operations.

128

The Private Securities

Litigation Reform Act of 1995 later codified this exemption into the

federal securities laws.

129

D. SEC Speech Restrictions Negated by Public Debate

Another case demonstrating how SEC disclosure requirements may,

unintentionally, interplay with the First Amendment involved Apple

Computer, Inc. and its CEO, Steve Jobs.

130

Jobs was the subject of a

123. Id. at 225.

124. See supra note 20 and accompanying text (describing those tweets).

125. 7 F.3d 357 (3d Cir. 1993).

126. Id. at 371.

127. Id. at 364.

128. The Court in Trump Securities stated that, “as a general matter”:

[W]hen an offering document’s forecasts, opinions or projections

are accompanied by meaningful cautionary statements, the

forward-looking statements will not form the basis for a securities

fraud claim if those statements did not affect the “total mix” of

information the document provided investors. In other words,

cautionary language, if sufficient, renders the alleged omissions or

misrepresentations immaterial as a matter of law.

Id. at 371. See generally Donald C. Langevoort, Disclosures that “Bespeak

Caution”, 49 Bus. L. Rev. 481 (1993) (describing this doctrine).

129. 15 U.S.C. §§ 77z-2, 78u-5 (2012).

130. In re Apple Comput. Secs. Litig., 886 F.2d 1109 (9th Cir. 1989).

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best-selling biography

131

and movie about his deviousness, lack of

human empathy, ingenuity, quirks, and tenacity,

132

all of which rivaled

or exceeded those qualities in Elon Musk. Like Musk, Jobs was a

controversial, idiosyncratic, inventive, and transformative genius whose

every pronouncement was closely followed in the press.

133

One of Apple’s innovations was a business-oriented computer

named “Lisa” and that computer’s disk drive, called “Twiggy.”

134

class action suit filed against Jobs and other Apple executives charged

that they committed fraud under the federal securities laws by over-

optimistically touting the potential sales of Lisa and Twiggy and by

failing to disclose operational problems.

135

The United States Court of

Appeals for the Ninth Circuit found that, while the defendants had

failed to disclose material facts concerning Lisa and Twiggy, “[a]t least

twenty articles stressed the risks Apple was taking, and detailed the

underlying problems producing those risks.”

136

The Court held that “the

defendant’s failure to disclose material information may be excused

where that information has been made credibly available to the market

by other sources.”

137

E. SEC Mandated Self-Censorship Through Monitoring Requirements

The SEC placed prior restraints that are similar to those imposed

on Musk on the speech of financial analysts during the Enron-era

scandals.

138

Those analysts were supposedly independent of their firms’

investment banking operations, but they actually acted as shills for

131. Walter Isaacson, Steve Jobs (2011).

132. Steve Jobs (Legendary Pictures 2015), available at https://www.amazon

.com/Steve-Jobs-Michael-Fassbender/dp/B016C9WS84/ref=sr_1_1?

keywords=Steve+Jobs+movie&qid=1569954908&sr=8-1 [https://perma.cc/

MKZ3-D79G].

133. See Jeff Bercovici, A Look Back at How the Media Covered the Death of

Steve Jobs, Forbes (Oct. 4, 2012, 8:02 AM), https://www.forbes.com/

sites/jeffbercovici/2012/10/04/a-look-back-at-how-the-media-covered-

the-death-of-steve-jobs/#57874985438a [https://perma.cc/V3R3-RD3H].

134. Apple Securities, 886 F.2d at 1111.

135. Id.

136. Id. at 1116. The Ninth Circuit did find a material issue of fact as to

whether certain statements by defendants concerning Twiggy’s technical

problems were negated by critical press coverage. Id. at 1118. On remand,

a jury exonerated Steve Jobs and Apple but assessed damages of some

$100 million against two other Apple executives. The trial judge set that

damage award aside as being inconsistent and unsupported by substantial

evidence. Multimillion Dollar Fraud Verdict Set Aside in Apple Computer

Litigation, 23 Sec. Reg. & L. Rep. 1320 (BNA Sept. 13, 1991).

137. 886 F.2d at 1115.

138. Markham, supra note 113, at 405–21.

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stocks being underwritten by their investment banker colleagues. Those

analysts publicly touted stocks they were following as being good

investments while internally disparaging their investment quality.

139

The SEC and other regulators entered into a $1.4 billion settlement

with several of the world’s largest investment banks over these

practices.

140

Among other things, the analysts were required to have a

lawyer “chaperone” present to monitor conversations whenever analysts

met or spoke privately with investment bankers in their firm.

141

F. SEC Regulation of Speech through Demeanor and Facial

Expressions

The SEC’s overreaching in imposing speech restraints is further

exhibited in its Regulation FD (Fair Disclosure).

142

Some background is

needed to put that regulation into context. In Dirks v. SEC,

143

the SEC

charged an investment adviser with insider trading fraud. The basis for

the claim was that the adviser sold the stock of one of his clients’

portfolio companies after being privately alerted by an official of that

company that it was carrying out a massive fraud.

144

The Supreme

Court rejected the SEC’s claim, holding that the adviser owed no duty

to publicly disclose that information before liquidating customer

positions.

145

The SEC did not accede gracefully to the Dirks decision.

Instead, it adopted Regulation FD, which prohibits executives from

making selective disclosures of nonpublic company information to

financial analysts or institutional investors in advance of a general

disclosure to the investing public.

146

139. For example, one prominent analyst had internally described the same

stocks he had publicly recommended as “crap,” “dog[s],” and “a piece[s]

of junk.” Id. at 409.

140. Regulators Finalize $1.4 Billion Wall St. Settlement, N.Y. Times, (Apr.

28, 2003, 2:46 PM), https://www.nytimes.com/2003/04/28/business/

regulators-finalize-14-billion-wall-st-settlement.html [https://perma.cc/

BEW5-4FPC].

141. See Letter from James A. Brigagliano, Assistant Dir., SEC Div. Trading

& Markets, to Dana G. Fleischman, Cleary, Gottlieb, Steen & Hamilton,

(Nov. 2, 2004), available at https://www.sec.gov/divisions/marketreg/mr-

noaction/grs110204.htm [https://perma.cc/3R2T-MEB2].

142. 17 C.F.R. § 243 (2007).

143. 463 U.S. 646 (1983).

144. Id. at 648.

145. Id. at 666–67.

146. 17 C.F.R. § 243.100 (2007).

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Regulation FD raises constitutional issues regarding the regulation

of speech because it does not regulate only harmful or false speech.

147

The intrusiveness of Regulation FD and its overarching restraints on

commercial speech is illustrated by a case brought by the SEC against

the CEO at Schering-Plough Corp. that was settled by consent.

148

The

SEC found in its settlement order that the CEO engaged in private

meetings with financial analysts.

149

At those meetings, “through a

combination of spoken language, tone, emphasis and demeanor,” the

CEO disclosed material nonpublic information concerning a decline in

the company’s quarterly earnings.

150

“After this enforcement action,

issuers learned that maintaining a poker face might be necessary to

avoid Regulation FD liability.”

151

This concern with image, as well as speech control, is certainly

applicable to Elon Musk and his use of social media. For example, after

settling the SEC’s contempt proceeding, and with Tesla “shares once

again falling precipitously, Mr. Musk took to Twitter and posted an

emoji of a winking face,” possibly communicating to investors that “he

has another surprise up his sleeve.”

152

Does this mean that the SEC now

regulates emoji interpretations, as well as voice tones and personal

demeanor?

153

147. Antony Page & Katy Yang, Controlling Corporate Speech: Is Regulation

Fair Disclosure Unconstitutional?, 39 U.C. Davis L. Rev. 1, 84 (2005)

(describing Regulation FD as inconsistent with the First Amendment);

see also Susan B. Heyman, Rethinking Regulation Fair Disclosure and

Corporate Free Speech, 36 Cardozo L. Rev 1099, 1105 (2015) (same).

148. In the Matter of Schering-Plough Corp., Exchange Act Release No. 34-

48461, 2003 WL 22082153 (Sept. 9, 2003).

149. Id. at *8.

150. Id. at *1.

151. Page & Yang, supra note 147, at 23. Nevertheless, this body language

speech apparently continues to be a common practice. As reported in the

Wall Street Journal: “Executives are forbidden from sharing nonpublic

information at closed meetings, but investors focus on their body language

and parse their language in the hopes of picking up a useful nugget or

two.” Liz Hoffman & Geoffery Rogow, Giant Investors Are Coming After

One of Wall Street’s Cash Cows, Wall St. J. (June 27, 2019, 4:59 PM),

https://www.wsj.com/articles/giant-investors-are-coming-after-one-of-wall-

streets-cash-cows-11561555988 [https://perma.cc/9JRC-CMXB].

152. Charley Grant, Investors Helped Build Tesla. They Could Undo It, Too,

Wall St. J. (May 24, 2019, 2:17 PM), https://www.wsj.com/articles/

investors-helped-build-tesla-they-could-undo-it-too-11558721830 [https://

perma.cc/HXC4-LXHD].

153. See Winking Face, Emojis.Wiki, https://emojis.wiki/winking-face/

[https://perma.cc/V5KN-7DST] (last visited Dec. 28, 2019) (providing

alternative definitions of winking emojis). What about confidential

internal Tesla emails from Musk to Tesla employees that have market

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In another Regulation FD case, SEC v. Siebel Systems, Inc,

154

the

SEC was supported by a group of law professors acting as amici curiae.

They argued that Regulation FD was not subject to the First

Amendment because “there is essentially a securities exemption, where–

by the First Amendment provides no protection for speech regulated

by federal securities laws.”

155

The United States District Court for the

Southern District of New York did not resolve the constitutional claims

because the disclosures were found not to have violated Regulation FD

(the company had previously disclosed the information, which was the

same defense used by Musk in the SEC contempt proceeding).

156

The

district court did, however, caution that Regulation FD posed First

Amendment concerns because applying it an “overly aggressive

manner” could have a “potential chilling effect which can discourage,

rather than, encourage public disclosure of material information.”

157

G. SEC Compelled Speech on Political Issues – Proxy Regulations

The conflict between the First Amendment and the SEC’s

commercial-speech-control requirements also arises in the agency’s

proxy voting rules. In Long Island Lighting Co. v. Barbash,

158

the United

States Court of Appeals for the Second Circuit considered the appli–

cation of SEC proxy rules to a public and very political controversy

involving massive construction cost overruns and mismanagement by a

public utility.

159

The stock of this utility company, the Long Island

Lighting Company (“LILCO”), was registered with the SEC.

160

Consequently, the company and its shareholders were subject to SEC

effect when leaked? See Justin Bariso, This Email from Elon Musk was

(Briefly) Worth Half a Billion Dollars, Inc. (May 22, 2019), https://

www.inc.com/justin-bariso/this-email-from-elon-musk-just-may-be-an-evil-

stroke-of-genius-but-its-not-enough-to-save-tesla.html?cid=hmhero [https://

perma.cc/C3D6-XQWU] (describing such an email and questioning whether

Musk might have leaked it because it had “a close resemblance to what

Musk would like to share himself, were he not handcuffed by his [SEC]

settlement”).

154. 384 F. Supp. 2d 694 (S.D.N.Y. 2005).

155. Page & Yang, supra note 147 at 6 n.26.

156. See supra note 41 and accompanying text (describing Musk’s tweets);

Siebel, 384 F. Supp. 2d at 707 (“The regulation does not prohibit persons

speaking on behalf of an issuer, from providing mere positive or negative

characterizations, or their optimistic or pessimistic subjective general

impressions, based upon or drawn from the material information available

to the public.”).

157. Siebel, 384 F. Supp. 2d at 708.

158. 779 F.2d 793 (2d Cir. 1985).

159. Id. at 794.

160. Id.

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rules governing proxy contests, which require the filing with that agency

of proxy solicitations.

161

LILCO sought to use those rules as both a

shield and a sword to prevent dissident shareholders from soliciting

proxies who sought to effect changes in company policies and structure.

One of the defendants in the LILCO case, John W. Matthews, was

a political candidate for the Nassau County Executive position and had

campaigned on an anti-LILCO platform.

162

Matthews purchased enough

shares of LILCO stock to allow him, under SEC rules, to initiate a

proxy contest against LILCO management.

163

A citizens group supp–

orted Matthews’s efforts to reform LILCO and published newspaper

advertisements attacking LILCO managers.

164

LILCO filed suit claim–

ing that the advertisements were misleading and that Matthews and

the other defendants supporting the proxy contest had not complied

with SEC proxy-disclosure requirements.

165

LILCO sought an injunc–

tion against such advertisements.

166

The district court held that the SEC proxy rules did not apply to

the advertisements because the advertisements were protected under

the First Amendment.

167

The Second Circuit reserved judgment on

whether the advertisements were protected by the First Amendment,

but reversed and remanded the matter for discovery on whether the

advertisements were, in fact, proxy solicitations.

168

One of the Second

Circuit panel members dissented on the grounds that the First

Amendment protected the advertisements as political statements.

169

This judge was of the view that LILCO “asks nothing less than that a

federal court act as a censor, empowered to determine the truth or

falsity of the ad’s claims about the merits of public power and to enjoin

further advocacy containing false claims.”

170

In the aftermath of this

decision, the SEC amended its proxy rules to exclude statements on

proxy votes that are made in public speeches or in broadcast media,

including advertisements.

171

161. 17 C.F.R. §§ 240.14a-9, -11 (1963).

162. Long Island Lighting Co., 779 F.2d at 794.

163. Id.

164. Id.

165. Id.

166. Id.

167. Id. at 795.

168. Id. at 795–96.

169. Id. at 797 (Winter, J., dissenting).

170. Id. at 798.

171. 17 C.F.R. § 240.14a-1(l)(2)(iv)(A) (2019).

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H. SEC Compelled “Shaming”

172

Speech – Proxy Votes on Social Issues

SEC proxy regulations raise additional First Amendment concerns.

Among other things, they require a report to shareholders for their

annual meeting that contains a comprehensive review of the company’s

operations over the past year and supporting materials for proxy

votes.

173

The SEC has used this report to compel issuers to publish and

take proxy votes on minority shareholder proposals, even when a

company’s board of directors opposes those proposals.

174

These proxy

votes often seek to shame management into modifying company

operations to conform to particular ethical and social views.

175

A leading case on what must be included for a proxy vote under

Rule 14a-8 is Lovenheim v. Iroquois Brands, Ltd.

176

The district court

ruled that the company had to publish in its proxy report information

describing the cruelty to geese inflicted by French suppliers of pâté.

177

That shaming speech was required even though the company’s pâté

sales were immaterial in economic terms. Rather, the court’s decision

was premised on the “ethical and social significance” of the proposal.

178

The SEC staff subsequently announced that shareholder proposals

raising “significant social policy issues” would generally not be excluded

from Rule 14a-8’s voting requirements.

179

The SEC thus transitioned

172. “Shaming” speech is “the act or practice of attempting to embarrass a

person or group by drawing attention to their perceived offence,

esp[ecially] on social media.” Shaming, Collins English Dictionary,

https://www.collinsdictionary.com/us/dictionary/english/shaming [https://

perma.cc/4NTU-ZR8Z] (last visited Dec. 28, 2019).

173. Fast Answers: Form 10-K, Secs. & Exch. Comm’n, https://www.sec.gov/

fast-answers/answers-form10khtm.html [https://perma.cc/4NTU-ZR8Z]

(last modified June 26, 2009) (“Although similarly named, the annual

report on Form 10-K is distinct from the ‘annual report to shareholders,’

which a company must send to its shareholders when it holds an annual

meeting to elect directors.”).

174. SEC Rule 14a-8 dictates the eligibility of such proposals. 17 C.F.R. §

240.14a-8 (2019). Among other things, such proposals and supporting

statement may not exceed five hundred words and may be submitted only

by shareholders that own at least $2,000 or one percent of the securities

being voted. See id.

175. See Thomas Lee Hazen et al., Corporations and Other Business

Enterprises 667 (4th ed. 2016) (describing social-based proposals).

176. 618 F. Supp. 554 (D.D.C. 1985).

177. Id. at 556, 562.

178. Id. at 558–59, 561. But see Miami Herald Publ’g Co. v. Tornillo, 418 U.S.

241, 256–58 (1974) (holding that the state could not compel a newspaper

to print replies by persons criticized by the newspaper).

179. See Hazen et al., supra note 175, at 668–69.

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from a commercial-speech regulator to a political- and social-issue-

referendum referee on shaming speech, a task for which it is ill-suited.

I. SEC Compelled Shaming Speech – Executive Compensation Proxy

Votes

The Dodd-Frank Wall Street Reform and Consumer Protection Act

of 2010 (“Dodd-Frank”)

180

imposed even more compelled-shaming

speech-requirements on public companies through proxy votes. Those

requirements included shareholder votes on “golden parachutes”

181

and

“say-on-pay” votes for compensation awarded to top executives.

182

They

sought to curb executive compensation by publicly shaming executives

who receive out-sized pay packages.

183

The requirements were added

after prior SEC compelled-shaming-speech requirements and other

governmental efforts to reduce executive compensation and golden

parachutes failed.

184

The Dodd-Frank say-on-pay votes have been

180. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,

Pub. L. No. 111-203, 124 Stat. 1376 (2010).

181. “Golden parachutes” are large compensation grants made to executives in

the event of a hostile takeover of their company. See Jerry W.

Markham, A Financial History of the United States From Enron-

Era Scandals to the Subprime Crisis (2004–2006) 93 (2011).

182. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,

Pub. L. No. 111-203, § 951, 124 Stat. 1376, 1899 (2010).

183. SEC regulations adopted under this authority require a non-binding

“advisory” shareholder vote on executive compensation and golden

parachutes. See Shareholder Approval of Executive Compensation and

Golden Parachute Compensation, Exchange Act Release Nos. 33-9178, 34-

63768, 75 Fed. Reg. 66,590 (Oct. 28, 2010).

184. See Jerry W. Markham, Excessive Executive Compensation—Why

Bother?, 2 J. Bus. & Tech. L. 277, 293–94 (2007). The SEC had earlier

sought to curb executive compensation by requiring top executives to

disclose their payouts in order to shame them and to arouse shareholder

ire. See Jerry W. Markham, The Politics of Executive Compensation, 34

Regulation 38, 41 (2011). That mandate led to further increases in

executive compensation. See Alex Edmans, Stop Making CEO Pay a

Political Issue, Harv. Bus. Rev. (July 18, 2016), https://hbr.org/2016/

07/stop-making-ceo-pay-a-political-issue [https://perma.cc/3GB4-TYXU].

Congress sought to align executive compensation with shareholder

interests by restricting executive salaries through punitive taxation, but

allowing unlimited compensation through stock options. See Markham,

Excessive Executive Compensation—Why Bother?, supra. The result was

massive stock options grants and wholesale accounting manipulations at

Enron, WorldCom, and other large public companies. Those frauds drove

stock prices upward, allowing executives to reap profits from stock-option

exercises. See Markham, supra note 113, at 30, 617. Taxes on golden

parachutes were equally ineffective. See Markham, supra note 181, at 93–94.

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equally ineffective in curbing executive compensation. Indeed, executive

compensation has increased since their adoption.

185

Dodd-Frank also requires shaming disclosures of the disparity

between the money paid to CEOs of public companies and that paid to

other employees.

186

In implementing this provision, the SEC admitted

that “Congress did not expressly state the specific objectives or

intended benefits” of that provision, and that “the legislative history of

the Dodd-Frank Act also does not expressly state the Congressional

purpose” underlying that provision.

187

So, the SEC simply made up its

own purpose and benefit. The agency asserted that this statute “was

intended to provide shareholders with a company-specific metric that

can assist in their evaluation of a registrant’s executive compensation

practices,”

188

whatever that means.

In any event, the disparity in executive and worker compensation

has only increased since the passage of Dodd-Frank.

189

This seems to

undermine any claim that these government requirements meet Central

Hudson’s requirements that restrictions on commercial speech must

“directly advance” the (rather suspect) governmental interest in

185. See Ira Kay, Did Say-on-Pay Reduce or “Compress” CEO Pay?, Harv.

L. Sch. F. on Corp. Governance & Fin. Reg. (Mar. 27, 2017),

https://corpgov.law.harvard.edu/2017/03/27/did-say-on-pay-reduce-or-

compress-ceo-pay/ [https://perma.cc/HPH4-T32Z] (“Median S&P 500

CEO pay increased 27% for the 4 years after SOP [say-on-pay] implem–

entation relative to the 3 years preceding SOP.”). This compelled-speech

mandate has not achieved its goal of reducing executive compensation

because shareholders have generally approved executive compensation

and golden parachutes that have been submitted for say-on-pay votes. See

Kristin M. Davis & Neil M. Leff, Majority of Say-on-Golden-Parachute

Votes Receive Shareholder Support, Skadden: Insights (Jan. 2016),

https://www.skadden.com/insights/publications/2016/01/majority-of-

sayongoldenparachute-votes-receive-sha [https://perma.cc/ZTE6-TXKP].

186. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,

Pub. L. No. 111-203, § 953(b), 124 Stat. 1376, 1904 (2010).

187. Pay Ratio Disclosure, Exchange Act Release Nos. 33-9877, 34-75610, 80

Fed. Reg. 50,104, 50,105 (Aug. 18, 2015).

188. See id.

189. Diana Hembree, CEO Pay Skyrockets to 361 Times That of the Average

Worker, Forbes (May 22, 2018, 4:28 PM), https://www.forbes.com/sites/

dianahembree/2018/05/22/ceo-pay-skyrockets-to-361-times-that-of-the-

average-worker/#1aea752d776d [https://perma.cc/GDG6-X55E] (describing

the growth in the disparity of pay between executives and workers).

Ironically, Elon Musk is the outlier in the overall disparity between CEO

and worker pay by reason of the fact that he was, by far, the highest

compensated executive at any public company in the United States in

2018. See Anders Melin et al., A 300% Surge Makes Pot CEO No. 2 in

Pay Ranking After Elon Musk, Bloomberg (May 17, 2019), https://

www.bloomberg.com/graphics/2019-highest-paid-ceos/ [https://perma.cc/

U3CE-6X4X].

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regulating executive compensation through compelled shaming

speech.

190

J. SEC Compelled Shaming Speech – “Conflict Diamonds”

Dodd-Frank additionally required the SEC to adopt regulations

requiring companies using “conflict diamonds” to investigate and

disclose the origin of those minerals.

191

That compelled-speech require–

ment was designed to shame company officials and arouse shareholder

action against the purchase of those minerals.

192

It was thought that

this shaming would shut off a source of funds for armed groups in the

Congo that were committing widespread atrocities and funding their

operations through the sale of diamonds and other minerals mined in

that region.

193

The United States Court of Appeals for the District of Columbia

Circuit held in National Association of Manufactures v. SEC,

194

that

the SEC’s rule implementing the Dodd-Frank conflict-mineral provision

ran afoul of the First Amendment. This was because, as the SEC

admitted, the rule was directed at “achieving overall social benefits”

rather than providing information affecting the economic interests of

investors.

195

“By compelling an issuer to confess blood on its hands, the

statute [and SEC rules] interfere[d] with th[e] exercise of the freedom of

speech under the First Amendment.”

196

K. SEC Compelled Shaming Speech – Climate Change Disclosures

In 2010, the SEC issued “guidance” for public companies’ required

shaming-speech disclosures regarding the effects of climate change on

their business models.

197

The SEC backtracked on the scope of those

190. Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n, 447 U.S. 557,

566 (1980); see supra notes 97–101 and accompanying text.

191. Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010,

Pub. L. No. 111–203, § 1502, 124 Stat. 1376, 2213–18 (2010).

192. Nat’l Ass’n of Mfrs. v. SEC, 800 F.3d 518, 545 (D.C. Cir. 2015).

193. See Dodd–Frank Wall Street Reform and Consumer Protection Act of

2010, Pub. L. No. 111–203, § 1502, 124 Stat. 1376, 2218 (2010) (describing

conflict minerals).

194. 800 F.3d 518 (D.C. Cir. 2015).

195. Id. at 522.

196. Id. at 530 (quoting Nat’l Ass’n of Mfrs. v. SEC, 748 F.3d 359, 371 (D.C.

Cir. 2014).

197. Commission Guidance Regarding Disclosure Related to Climate Change,

Exchange Act Release Nos. 33-9106, 34-61469, 75 Fed. Reg. 6,290 (Feb.

8, 2010).

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disclosures after the election of Donald Trump as president in 2016.

198

For instance, the SEC allowed Exxon Mobil to exclude a Rule 14a-8

shareholder proposal submitted by two pension fund investors that

would have required the company to set targets for emission reductions

under the Paris Climate Accord.

199

Nevertheless, the State of New York

adopted the pension fund investors’ cause. The New York attorney

general sued Exxon Mobil over its disclosures, or lack thereof, relating

to the future effects of climate-change regulations on its business.

200

The

state was seeking an injunction and $1.6 billion for shareholder

restitution. After a lengthy bench trial, a New York Supreme Court

judge dismissed the case.

201

In the interim, several large companies have

announced possible climate-change-related costs on their future busi–

ness.

202

These actions only confirm the fact that climate change is a social

and political issue that cannot be separated from commercial activities.

As the SEC noted in its 2010 guidance, climate change is the subject of

“intense public discussion.”

203

“Scientists, government leaders, legis–

lators, regulators, businesses, including insurance companies, investors,

analysts and the public at large have expressed heightened interest in

198. See Alexandra Semenova, SEC Stops Prodding Companies to Detail

Climate Change Impacts, Bloomberg (July 16, 2018, 5:31 AM), https://

news.bloomberglaw.com/corporate-law/sec-stops-prodding-companies-to-

detail-climate-change-impacts [https://perma.cc/NS4Q-HDJB]. For more

on the scope of corporate disclosures under President Trump see infra

notes 215–218 and accompanying text.

199. See Corporate Climate Coups Averted, Opinion, Wall St. J. (June 2, 2019,

5:14 PM), https://www.wsj.com/articles/corporate-climate-coups-averted-

11559510064 [https://perma.cc/BAH7-Z2GB]. Undaunted, those same

pension fund investors thereafter submitted a Rule 14a-8 proposal seeking

the appointment of a board committee to oversee corporate strategy for

dealing with the effects of climate change. That proposal was included in

the company’s proxy materials but was rejected by shareholders. See id.

200. Corinne Ramey & Bradley Olson, New York Sues Exxon Over Climate

Change Disclosures, Wall St. J. (Oct. 24, 2018, 4:15 PM), https://

www.wsj.com/articles/new-york-sues-exxon-over-climate-change-disclosures-

1540404374 [https://perma.cc/U5WT-UXZM].

201. Pippa Stevens, Exxon Found Not Guilty in New York Climate-Change

Securities Fraud Trial, Ending 4-Year Saga, CNBC (Dec. 10, 2019),

https://www.cnbc.com/2019/12/10/exxon-did-not-mislead-investors-a-new-

york-judge-ruled-on-tuesday.html [https://perma.cc/AY3N-JWRR].

202. Brad Plumer, Companies See Climate Change Hitting Their Bottom Lines

in the Next 5 Years, N.Y. Times (June 4, 2019), https://www.nytimes.com/

2019/06/04/climate/companies-climate-change-financial-impact.html

[https://perma.cc/GX4V-QQJ7].

203. Commission Guidance Regarding Disclosure Related to Climate Change,

Exchange Act Release Nos. 33-9106, 34-61469, 75 Fed. Reg. 6,290, 6,290

(Feb. 8, 2010).

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climate change.”

204

The State of New York’s action against Exxon Mobil

was also a viewpoint-driven attack that seeks to compel certain speech

in order to shame the company.

205

The rise of the “social investor” further underscores the difficulty

of distinguishing viewpoint-driven commercial speech from purely

political speech in the context of climate change.

206

Social investors seek

to influence corporate decision-making by investing in “green”

companies that do not adversely affect the climate.

207

Numerous mutual

funds and investment advisory services cater to these investors by

selecting portfolios that conform to their social and political view–

points.

208

IV. First Amendment Protection for Musk on Twitter

“The liberty of the press is not confined to newspapers and

periodicals.”

209

First Amendment principles do not vary for new forms

204. Id.

205. State AGs’ Climate Cover-Up, Opinion, Wall St. J. (June 7, 2019, 6:10

PM), https://www.wsj.com/articles/state-ags-climate-cover-up-11559945410

[https://perma.cc/GL4S-QYJ4] (describing a law-school program funded

by a private foundation that expresses its social and political viewpoints

by paying the salaries of prosecutors, such as those in New York, who

agree to pursue “progressive clean energy, climate change, and

environmental legal positions”).

206. See Todd Millay, Social Investing: The Good, The Bad and Ugly, Forbes,

(Feb. 29, 2016, 3:28 PM), https://www.forbes.com/sites/toddmillay/2016/02/

29/social-investing-the-good-the-bad-and-the-ugly/#5ea369c98ba0 [https://

perma.cc/RWH3-JM5A].

207. See George Kantchev & Sarah Kent, Funds Say Climate Change is Now

Part of Their Investing Equation, Wall St. J. (June 10, 2019, 10:09

AM), https://www.wsj.com/articles/funds-say-climate-change-is-now-part-

of-their-investing-equation-11560218940 [https://perma.cc/7ZQD-CBK3].

But see Heather Gillers, Calpers’ Dilemma: Save the World or Make

Money?, Wall St. J. (June 16, 2019, 4:22 PM), https://www.wsj.com/

articles/calpers-dilemma-save-the-world-or-make-money-11560684601

[https://perma.cc/PA6L-M6LE] (large government pension fund questions

climate change viewpoint limitations on investments in non-green companies).

208. Britton O’Daly, Beleaguered Money Managers Find Bright Spot in ESG,

Wall St. J. (July 11, 2019, 11:12 AM), https://www.wsj.com/articles/

beleaguered-money-managers-find-bright-spot-in-esg-11562846400 [https://

perma.cc/6YYQ-H7ST] (record amount invested in socially responsible

mutual funds); Dieter Holger, Startups Target Millennials With Social-

Investing Apps, Wall St. J. (June 10, 2019, 10:13 PM), https://www

.wsj.com/articles/startups-target-millennials-with-social-investing-apps-

11560219180 [https://perma.cc/B9BK-UPSM] (describing social investing

products).

209. Lowe v. SEC, 472 U.S. 181, 205 (1985) (quoting Lovell v. City of Griffin,

303 U.S. 444, 452 (1938)).

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of communication.

210

“Substantial questions would arise if courts were

to begin saying what means of speech should be preferred or disfavored.

And in all events, those differentiations might soon prove to be

irrelevant or outdated by technologies that are in rapid flux.”

211

Twitter

falls squarely within the scope of these observations. As the Supreme

Court has observed, Twitter and other social media provide “relatively

unlimited, low-cost capacity for communication of all kinds”

212

[O]n Twitter, users can petition their elected representatives and

otherwise engage with them in a direct manner. Indeed,

Governors in all 50 States and almost every Member of Congress

have set up accounts for this purpose. In short, social media users

employ these websites to engage in a wide array of protected First

Amendment activity on topics ‘as diverse as human thought.’

213

Social media by definition involves the provision and exchange of

social thoughts and activities, and it is thus content oriented.

214

That

Twitter and other social media are now popular forums for public

debate on climate change is most notably demonstrated by mainstream

media’s interest in President Trump’s tweets on that issue,

215

as well as

in other social and political “commercial” controversies he has fueled

210. Brown v. Entm’t Merchs. Ass’n, 564 U.S. 786, 790 (2011).

211. Citizens United v. Fed. Election Comm’n, 558 U.S. 310, 326 (2009).

212. Packingham v. North Carolina, 137 S. Ct. 1730, 1735 (2017) (quoting

Reno v. ACLU, 521 U.S. 844, 870 (1997)).

213. Id. at 1735–36 (citation omitted) (quoting Reno, 521 U.S. at 870).

214. See Social Media, Merriam-Webster, https://www.merriam-webster.com/

dictionary/social%20media [https://perma.cc/7VF9-CWDY] (“forms of

electronic communication (such as websites for social networking and

microblogging) through which users create online communities to share

information, ideas, personal messages, and other content (such as

videos)”).

215. Frank Newport, Deconstructing Trump’s Use of Twitter, Gallup (May

16, 2018), https://news.gallup.com/poll/234509/deconstructing-trump-

twitter.aspx [https://perma.cc/M944-GEPW] (“Over three-quarters of

Americans say they see, read or hear about Trump’s tweets a lot or a fair

amount.”). The President particularly likes to deride climate change claims.

See, e.g., Coral Davenport & Mark Landler, Trump Administration Hardens

Its Attack on Climate Science, N.Y. Times (May 27, 2019), https://www.

nytimes.com/2019/05/27/us/politics/trump-climate-science.html [https://

perma.cc/Q9GT-XK82]; Twitter Mobilizes Meme Army After Trump

Suggests Snowstorms Disprove Global Warming, RT (Jan. 21, 2019, 10:24

AM), https://www.rt.com/usa/449315-trump-global-warming-snow-tweet/

[https://perma.cc/7M2N-CLRB] (Trump tweeted that he wished for “a little

of that old fashioned Global Warming right now!” after severe snowstorms

hit the U.S.).

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through Twitter.

216

Trump’s tweets cause outrage for the millions who

oppose him politically, and mainstream media report relentlessly on the

purported lies by Trump on Twitter and elsewhere.

217

Yet neither the

President, nor what he gleefully mocks as “fake news”—the mainstream

media

218

—are subject to SEC censorship or other prior restraints, and

for “good reason.”

219

As the United States Court of Appeals for the

Second Circuit observed in holding that Trump could not block critics

from accessing his Twitter account, the public debate over Trump’s

policies is historically heated and intense, but “as uncomfortable and as

unpleasant as it frequently may be, [that debate] is nonetheless a good

thing. . . . [I]f the First Amendment means anything, it means that the

best response to disfavored speech on matters of public concern is more

speech, not less.”

220

Like Trump, Musk is a controversial figure. Like Trump, Musk is

brash, outspoken (indeed, barren of most speech filters), and combative

in his Twitter postings.

221

Those traits have simultaneously propelled

216. The President has tweeted about numerous controversial issues that affect

commercial, as well as social and political, interests, e.g., the political and

commercial effects of tariffs on China and immigration restrictions. These

tweets can be found on the White House’s Twitter page. The White House

(@WhiteHouse), Twitter, https://twitter.com/whitehouse?lang=en

[https://perma.cc/XD57-UBJH].

217. For example, the Washington Post claimed that President Trump has

made more than 10,000 false or misleading statements while in office.

Glenn Kessler et al., President Trump has Made More Than 10,000 False

or Misleading Claims, Wash. Post (Apr. 29, 2019, 3:00 AM),

https://www.washingtonpost.com/politics/2019/04/29/president-trump-

has-made-more-than-false-or-misleading-claims/?utm_term=.e5f70b55f155

[https://perma.cc/967Z-CM32].

218. Interestingly, this “mainstream” media is operated mostly by public

companies and other large commercial enterprises. See Democracy on

Deadline, PBS: Indep. Lens, https://www.pbs.org/independentlens/

democracyondeadline/mediaownership.html [https://perma.cc/UP6L-86HB].

219. See United States v. Alvarez, 567 U.S. 709, 728 (2012) (“The First

Amendment itself ensures the right to respond to speech we do not like,

and for good reason. Freedom of speech and thought flows not from the

beneficence of the state but from the inalienable rights of the person. And

suppression of speech by the government can make exposure of falsity

more difficult, not less so. Society has the right and civic duty to engage

in open, dynamic, rational discourse. These ends are not well served when

the government seeks to orchestrate public discussion through content-

based mandates.”).

220. Knight First Amendment Inst. v. Trump, 928 F.3d 226, 240 (2d Cir.

2019).

221. See Aaron Pressman & Adam Lashinsky, Data Sheet—What Elon Musk

and President Trump Have in Common, Fortune (Aug. 20, 2018),

https://fortune.com/2018/08/20/data-sheet-elon-musk-president-trump-

tweets/ [https://perma.cc/85VG-NZ85]; Jordan Malter, Elon Musk Takes

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Musk to world-wide fame and made him otherwise unlikable on any

level, save for some who admire his paradigm-changing ventures.

222

Trump, Musk’s numerous, and sometimes erratic, pronouncements and

predictions, and his repartee with his critics on Twitter are sharply

debated and much criticized.

223

Like Trump, Musk is waging war with

mainstream media; in Musk’s case, the media are fighting back with

harsh criticism of him and Tesla.

224

Ironically, Trump and Musk are

also at loggerheads with each other over their respective viewpoints on

climate change.

225

The SEC’s injunction blocking Musk’s tweets appears to hinge on

the Central Hudson exception from First Amendment protection for

Trump-Style Trash Talk to the Business World, CNBC (Aug. 10, 2018,

2:12 PM), https://www.cnbc.com/2018/08/10/elon-musk-takes-trump-

style-twitter-trash-talk-to-the-business-world.html [https://perma.cc/

4MV2-92QR]; Scott Austin & Samarth Bansal, 4,925 Tweets: Elon Musk’s

Twitter Habit Dissected, Wall St. J. (July 12, 2018), http://graphics

.wsj.com/elon-musk-twitter-habit-analysis/ [https://perma.cc/N7J5-LEW5]

(describing Musk’s far-ranging and controversial use of Twitter); Matthew

Belvedere, Billionaire Innovator Elon Musk is a ‘Force of Nature,’

Trump Infrastructure Advisor Says, CNBC (Mar. 10, 2017, 11:26 AM),

https://www.cnbc.com/2017/03/10/billionaire-innovator-elon-musk-is-a-

force-of-nature-trump-infrastructure-advisor-says.html [https://perma.cc/

UG8T-V73A].

222. As one source notes: “The jury is still out on Elon Musk, as it is for all of

us. But it’s likely he will one day be remembered as the greatest creative

innovator and entrepreneur of our time—unless, that is, he manages to

sabotage his own success.” Bill Murphy, Jr., With 11 Short Words, Elon

Musk Just Showed a Tiny Glimpse of Self-Awareness and Humility (This

Needs to Stop Right Now), Inc. (June 15, 2019), https://www.inc.com/

bill-murphy-jr/with-11-short-words-elon-musk-just-showed-a-tiny-glimpse-

of-self-awareness-humility-this-needs-to-stop-right-now.html [https://

perma.cc/7A9P-499D].

223. Sam Abuelsamid, Who Would Buy Tesla and Why?, Forbes (May 29,

2019, 2:46 PM), https://www.forbes.com/sites/samabuelsamid/2019/05/

29/who-would-buy-tesla-and-why/#49d691863451 [https://perma.cc/2YRW

-WWQU]; Grant, supra note 152.

224. Jason Murdock, Elon Musk Attacks Media for ‘Relentlessly Negative’

Tesla Coverage, Newsweek (June 6, 2018, 7:26 AM), https://www.

newsweek.com/elon-musk-launches-fresh-attack-media-relentlessly-negative-

coverage-1010868 [https://perma.cc/KXK9-2KPV]; Marina Koren, Elon

Musk’s Silly War With the Media, The Atlantic (May 24, 2018),

https://www.theatlantic.com/technology/archive/2018/05/elon-musk-tesla-

twitter-journalism/561086/ [https://perma.cc/P66A-F4FF].

225. That dispute was touched off by a tweet from Musk announcing his

resignation from the President’s Economic Advisory Council after Trump

withdrew the United States from the Paris Climate Accord. See Lucinda

Shen, Elon Musk Leaves President Trump’s Advisory Council After Paris

Agreement Exit, Fortune (June 1, 2017), https://fortune.com/2017/

06/01/elon-musk-trump-paris-agreement/ [https://perma.cc/KF9N-RC47].

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misleading commercial speech.

226

Yet there is no such exception for the

President’s political or social speech carried out through either main–

stream media or Twitter. Surely no one could credibly argue that the

government can regulate or enjoin speech on climate change, even false

speech, by the President, a member of the press, or a concerned

citizen.

227

The country depends on the First Amendment, not

government-appointed censors, to ferret out false statements on climate

change and other critical political and social issues.

Musk should be given equal protection in the expression of his

viewpoints about Tesla through Twitter.

228

As Tesla’s CEO, Musk is a

leader in the debate over whether replacing fossil-fuel cars with electric-

powered ones is a commercially viable proposition.

229

Musk’s tweets on

the role of Tesla in making electric cars are, therefore, “inextricably

intertwined” with his political and social views about how Tesla is

accomplishing its politically and socially oriented mission of fighting

climate change.

230

That intertwining should remove his tweets from the

category of commercial speech and place them in the arena of fully

protected political speech.

231

226. See supra notes 93–101 and accompanying text; see also, e.g., Lorenzo v.

SEC, 139 S. Ct. 1094, 1099–1100 (2019) (holding that the SEC could bar

a person for life from working in the securities industry who disseminated

to investors false statements that were provided by his boss); SEC v.

World Radio Mission, 544 F.2d 535, 538–40 (1st Cir. 1976) (holding that

a religious organization was not protected by First Amendment from the

application of federal securities laws to the organization’s misleading offer

and sale of bonds).

227. See supra Part II (discussing First Amendment protection even for false

political speech).

228. Citizens United v. Fed. Election Comm’n, 558 U.S. 310, 341 (2009) (“The

Government may not . . . deprive the public of the right and privilege to

determine for itself what speech and speakers are worthy of consid–

eration.”).

229. See generally, e.g., Fred Lambert, Elon Musk Posits Tesla Under Attack

by the Fossil Fuel Industry, What Do You Think?, Electrek (May 30,

2019, 1:43 PM), https://electrek.co/2019/05/30/elon-musk-tesla-under-

attack-fossil-fuel-industry/ [https://perma.cc/8PTF-LLN9] (reporting on

claims by Musk that Tesla is under attack from traditional car

manufacturers and the fossil fuel industry as a whole).

230. See supra note 88 and accompanying text (describing full First Amendment

protection for “inextricably intertwined” commercial and (even false) political

speech).

231. As the Dean of the Florida International University College of Law at

Miami presciently observed before Tesla debuted its first commercial

product:

Toyota advertising its hybrid car is a commercial message. “Fight

global warming” is a noncommercial, political message. Toyota

showing how you can and should fight global warming by

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To be sure, financial analysts, and at least some investors, read

Musk’s tweets and those tweets can and do affect Tesla’s stock prices.

232

The SEC’s position takes on a high moral tone in claiming innocent

persons are defrauded when Musk’s tweets and taunts are wrong.

233

Such rectitude is commendable on its face, but it ignores the basic

premise of the First Amendment. Truth is best discovered through free

and open debate rather than by the dictates of SEC bureaucrats, or by

lawyers schooled in that agency’s compelled-speech and censorship

standards.

234

Leaving for another day the issue of the precise areas where

commercial-speech censorship is appropriate under the federal securities

laws,

235

the SEC needs, at the least, to be restricted in its efforts to

purchasing a hybrid car would likely be mixed speech. The degree

of permissible regulation depends in part on whether the messages

are inseparable, or as the Court has stated, “inextricably

intertwined.”

Antony Page, Taking Stock of the First Amendment’s Application to

Securities Regulation, 58 S.C. L. Rev. 789, 796 (2007) (footnotes

omitted).

232. See, e.g., Robert Ferris, Tesla is Down 7% Thanks to Elon Musk’s

Tweets—He’s All but Wiped out the Gains Tesla Got for Settling with the

SEC, CNBC (Oct. 5, 2018, 10:03 AM), https://www.cnbc.com/2018/10/

05/tesla-shares-drop-nearly-5percent-after-musk-mocks-sec-on-twitter.html

[https://perma.cc/4MQJ-GQAK].

233. See In the Matter of Wealthfront Advisers, LLC, No. 3-18949, 2018 WL

6722756, at *3 (S.E.C. Dec. 21, 2018) (charging misleading tweets).

234. Musk’s twitter-sitter lawyers are under compulsion to follow SEC speech

mandates, which means they will be inclined to take an overly restrictive

approach in censoring Musk’s tweets. See SEC In re Implementation of

Standards of Professional Conduct for Attorneys, Exchange Act Release

No. 34-47276, 2003 WL 193527 (Jan. 29, 2003) (describing Section 307 of

the Sarbanes-Oxley Act, 15 U.S.C. § 7245 (2012), which requires attorneys

to monitor and report possible securities violations up the chain of

command of public companies); see also Kim T. Vu, Note, Conscripting

Attorneys to Battle Corporate Fraud Without Shields or Armor?

Reconsidering Retaliatory Discharge in Light of Sarbanes-Oxley, 105

Mich. L. Rev. 209, 210–12 (2006) (describing the role of attorneys as

whistleblowers under Sarbanes-Oxley).

235. A harder line to draw is where the mainstream media or the Internet and

social media are used to commit fraud by, for example: (1) disseminating

intentionally false paid advertisements; (2) trading on advance

information about a newspaper article that will have a market effect when

published; and (3) perpetrating “pump-and-dump” schemes by publishing

on the Internet false information that manipulates stock prices. See, e.g.,

Carpenter v. United States, 484 U.S. 19, 24 (1987) (stating that the

Supreme Court is equally divided over the issue of whether a reporter

violated federal securities laws by trading on advance information

contained in a column in the Wall Street Journal that had a market effect

when published); SEC v. Wall Street Pub. Inst., Inc., 851 F.2d 365, 366

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censor speech on public policy issues in public forums such as social

media. Certainly, Musk’s tweets and Tesla’s role in society extend far

beyond the investment interests of a relatively few Tesla shareholders.

Shareholder concerns are far outweighed by the widespread public

interest in the high-profile role played by Musk on Twitter in the

vigorous and ongoing viewpoint-based debate over the future role of

electric cars.

The SEC should stop acting like investors’ over-protective parents.

It should let Musk tweet what he wants about climate change and let

investors make of that information what they will.

236

As was the case

with Steve Jobs and Apple, the media’s intense scrutiny and criticism

of Musk’s tweets should negate any claim of reliance on the contents of

Musk’s tweets for investment purposes.

237

If regulatory protection is,

nevertheless, deemed necessary to shield unsophisticated investors from

the rigors of free speech and public debate, the solution lies in the

practice of providing safe harbors for projections—a solution addressed,

somewhat ironically, in the In re Donald J. Trump Securities

Litigation.

238

The SEC could expand the safe-harbor doctrine to include

statements made by company executives on social media. Such a

warning is preferable to suppressing viewpoint-driven commercial

(D.C. Cir. 1982) (remanding case of SEC enforcement action under the

anti-touting disclosure provisions of Section 17(b) of the Securities Act of

1933, 15 U.S.C. §77q(b), and SEC anti-fraud rules); Markham, supra

note 181.

236. The SEC apparently believes that investors in public companies are too

unsophisticated to assess the value of uncensored public statements by

CEOs, even in forums where their accuracy is subject to media scrutiny.

Most investors in public companies, however, are highly sophisticated

financial institutions, such as mutual funds, pension funds, insurance

companies, and banks. See Charles McGrath, 80% of Equity Market Cap

Held by Institutions, Pensions & Invs. (Apr. 25, 2017, 1:00 AM),

https://www.pionline.com/article/20170425/INTERACTIVE/170429926

/80-of-equity-market-cap-held-by-institutions [https://perma.cc/5UJA-

BPSQ]. Moreover, the principal investment concern with social media

posts is their short-term effects on stock prices. But so-called high-

frequency traders overwhelmingly dominate short-term investment

strategies. Those traders use complex computer algorithms and high-speed

trading systems that should be sophisticated enough to assess the value

and truth of Twitter and other social-media postings. See generally Jerry

W. Markham, High-Speed Trading on Stock and Commodity Markets—

From Courier Pigeons to Computers, 52 San Diego L. Rev. 555 (2015).

237. See supra notes 130–135 and accompanying text.

238. 7 F.3d 357, 371 (3d Cir. 1993); see also Alan Horwich, A Call for the SEC

to Adopt More Safe Harbors That Limit the Reach of Rule 10b-5, 74 Bus.

Law. 53, 64–71 (2018) (describing various SEC-created safe harbors and

advocating for the broader use of such arrangements).

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speech. Investors would be advised by such an SEC regulation that they

should rely on only a company’s SEC-filed statements in making

investment decisions.

239

Non-filed statements that a public company’s

officers made on social media could not be the basis of a claim that

such statements misled shareholders.

240

If an officer is speaking officially

for a public company and the speaker wishes investors to consider that

information in their investment decisions, the company would have to

file the statement with the SEC.

241

Otherwise, the statement simply

becomes a matter of debate just like any other aspect of protected free

speech in the United States.

242

Conclusion

Gagging Musk’s unfiltered responses to critics by requiring that

securities lawyers apply SEC censorship rules through prior review of

Musk’s viewpoint-driven tweets conflicts with basic First Amendment

protections. The public’s right to hear Musk’s uncensored viewpoint-

driven tweets about Tesla’s role in combating climate change should

not be suppressed under the guise of commercial-speech regulation.

Protecting investors from erroneous or even false viewpoint-driven

239. Turning the settlement order in the Elon Musk contempt proceeding on

its head provides a template for such an exemption. That order requires

prior review of Musk’s communications relating to a long list of Tesla

activities, including production and sales, new business lines and forecasts

that Tesla had not previously publicly disclosed or which deviate from

prior forecasts that are “made in any format, including, but not limited

to, posts on social media (e.g., Twitter), the Company’s website (e.g., the

Company’s blog), press releases, and investor calls; and . . . any written

communication.” Order Amending Final Judgment as to Defendant Elon

Musk at 1, No. 1:18-cv-8865-AJN-GWG, SEC v. Elon Musk (S.D.N.Y.

April 30, 2019), ECF No. 47.

240. The benefit bestowed by an SEC license or reporting requirement would

be limited to public filings at the SEC that are equally available to all on

the SEC’s “EDGAR” system. See Filings and Forms, Secs. & Exch.

Comm’n, https://www.sec.gov/edgar.shtml [https://perma.cc/A83C-9TDR]

(last modified Jan. 9, 2017).

241. 15 U.S.C. § 78r(a) (2012).

242. There is already precedent for such a limitation in Section 18(a) of the

Securities Exchange Act of 1934. It provides a private right of action for

persons relying on and damaged by an intentionally false statement made

“in any application, report, or document filed pursuant to this chapter or

any rule or regulation thereunder.” Id. See generally Thomas Lee Hazen,

Fed. Judicial Ctr., Federal Securities Law 112 (3d ed. 2011),

available at https://www.fjc.gov/sites/default/files/2012/FedSec3d.pdf

[https://perma.cc/CGW4-DZYU] (describing Section 18(a) and noting

that courts have applied an “eyeball” test requiring a plaintiff to have

actually relied on filed materials and not similar information in other

documents published by an issuer).

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speech on social media should be up to the same free press that protects

us in our everyday political and social lives.