What happened
Tesla (TSLA +0.97%) stock jumped 3.3% (as of 11:40 a.m. ET) Wednesday morning after The Wall Street Journal reported that CEO Elon Musk and Tesla are challenging the Securities and Exchange Commission's (SEC) right to enforce the 2018 consent decree that settled SEC charges that Musk made "false and misleading statements" in the below tweet...
Am considering taking Tesla private at $420. Funding secured.
-- Elon Musk (@elonmusk) August 7, 2018
... and subsequent tweets:
Investor support is confirmed. Only reason why this is not certain is that it's contingent on a shareholder vote. https://t.co/bIH4Td5fED
-- Elon Musk (@elonmusk) August 7, 2018
So what
As WSJ reminds us, the terms of the consent decree required that Tesla's lawyers screen and "preapprove" Musk's posts on Twitter to ensure they didn't contain material "financial, production and management information" that might move the stock price. In the years since he agreed to these conditions, however, Musk claims that "the Securities and Exchange Commission has abused the deal to make 'round after round of demands for voluminous, costly document productions, with no signs of abatement,'" reports the Journal.
And of course, Musk has continued to tweet.
Image source: Getty Images.
Now what
Now Musk wants to go back on his agreement with the SEC, arguing that he only agreed to the agency's terms in 2018 "for the survival of Tesla, for the sake of its shareholders," and that the strictures imposed by the SEC violate his first amendment rights to free speech.
So why is any of the above important to investors -- especially seeing as even before filing suit, Musk didn't seem to be allowing the consent decree to affect his tweeting in any case? Simply for this reason: The fact that the decree remains in force, even technically, means there's an ongoing risk that the SEC might seek to enforce it by suing Tesla, Musk, or both.
If the consent decree goes away, that litigation risk to Tesla also goes away -- and that's what investors are hoping for today.
