A federal court ordered Elon Musk to comply with a subpoena issued by the Securities and Exchange Commission, rejecting Musk's claims that the SEC was “harassing” him and exceeding its investigative authority.
In a order Published Saturday, U.S. District Judge Laurel Beeler wrote that “the SEC has broad authority to issue subpoenas.” The information it seeks from Musk is relevant to the agency's investigation into “possible violations of the federal securities laws in connection with the defendant's 2022 purchases of Twitter stock and his 2022 statements.” and SEC filings relating to Twitter,” Beeler wrote.
Musk testified twice in July 2022, but the SEC said it has obtained thousands of new documents since then and wants him to testify a third time. Beeler's order granted the SEC's request to enforce the subpoena and ordered the SEC and Musk to “confer within one week and agree on a date and of a place for testimony. If they cannot agree, then they can submit a joint letter with their respective positions. , and the court will decide the dispute for them.”
Beeler, a magistrate judge in the US District Court for the Northern District of California, had indicated that she would rule against Musk at a hearing in mid-December. During the hearing, Beeler said she would issue an order requiring Musk to testify if the parties do not quickly agree on a date and time for a deposition.
Only “minimal relevance” is needed to enforce a subpoena
The SEC began its investigation in April 2022 after Musk acquired a 9% stake in Twitter and failed to disclose that stake within 10 days, as required by U.S. law. The investigation extended beyond the late disclosure and “concerns all of Musk's 2022 purchases of Twitter stock as well as his 2022 statements and filings with the SEC,” the SEC previously told the court.
The SEC sued Musk in October for his refusal to testify again. Musk said in a court filing that the SEC investigation is motivated by Musk's political beliefs and “smacks of McCarthyism.”
“This is a subpoena for investigation. A modicum of relevance is necessary to enforce it,” Beeler wrote. The SEC “has satisfied all administrative requirements” for the subpoena and it “may require the attendance of witnesses it deems relevant or material to its investigation.”
The SEC has issued formal orders authorizing SEC staff to investigate, Beeler noted. “Because the SEC issued its subpoena lawfully, the burden shifts to the defendant to prove that the subpoena was issued in bad faith or for an improper purpose, such as harassment or to pressure that person into resolves a collateral dispute or is “overly broad or unduly burdensome,” Beeler wrote.
Musk did not bear this burden, the order said. “At first, he did not object to the subpoenas and only requested an accommodation for his schedule. Only later did he object to the testimony, calling it irrelevant and of harassment, in part because he had testified twice before,” Beeler wrote.
While Musk claims the SEC is harassing him, Beeler wrote that his “harassment allegations generally call into question the appropriateness of the SEC's continued investigation.” But the SEC subpoena falls within its authority” and “seeks relevant information.”
Musk's argument about SEC authority rejected
Beeler then responded to Musk's claim that the subpoena violates the Appointments Clause of the U.S. Constitution because “only a duly appointed officer subject to appropriate presidential supervision can exercise authority of the type entrusted to the personnel of “SEC enforcement in this matter.”
Musk hopes the SEC's powers will be limited by the Supreme Court in the coming years. SEC v. George Jarkesy case, which concerns whether the SEC can impose fines in an administrative proceeding. Musk asked the district court to either dismiss the subpoena outright or stay proceedings against him until the Supreme Court issues a ruling in Jarkesy. Beeler decided a stay was not necessary.
The SEC claims that its “attorneys who sign the subpoenas are non-officer employees who are not subject to the Appointments Clause” because they do not have the powers of a federal judge. “Instead, attorneys perform investigative functions pursuant to formal orders from the SEC,” Beeler wrote. “Moreover, as this case shows, the SEC cannot enforce compliance with its subpoenas: it requires a court order.” In summary, Beeler rejected Musk's call for a reprieve because the wait Jarkesy this case “is unlikely to affect the outcome here.”
SpaceX, led by Musk, has made similar arguments regarding the authority of other agencies. In September 2023, SpaceX sued United States Attorney General Merrick Garland and two other Justice Department officials in response to government allegations that SpaceX discriminated against asylum seekers and refugees when hiring. SpaceX asserted that the DOJ's administrative process for handling the discrimination complaint is unconstitutional because the administrative law judge charged with adjudicating the government's complaint “is unconstitutionally insulated from presidential authority.”
Last month, SpaceX sued the National Labor Relations Board in response to the agency's allegation that SpaceX illegally fired eight employees who wrote and distributed an open letter criticizing Musk. SpaceX's lawsuit claimed that the structure of the U.S. unemployment agency was unconstitutional because the administrative law judge could not be removed by the president of the United States.