According to The New York Times, the Securities and Exchange Commission (SEC) has filed a lawsuit against Elon Musk, stemming from his 2022 acquisition of Twitter, now known as X. The SEC alleges that Musk failed to report his acquisition of more than 5% of the company within the required five-day reporting window, profiting by at least $150 million as a result.
SEC sues Elon Musk over undisclosed Twitter acquisition
The SEC’s complaint indicates that Musk’s undisclosed stake allowed him to purchase additional shares at artificially low prices, negatively impacting other Twitter shareholders. Had Musk disclosed his stake timely, it is claimed that Twitter’s stock would have risen, resulting in higher costs for Musk and better returns for those shareholders who sold prior to his disclosure.
According to SEC rules, investors must report a 5% or more ownership position within five days. Musk reportedly failed to file the required beneficial ownership report by the March 24, 2022 deadline, instead purchasing over $500 million worth of Twitter stock between March 25 and April 1, 2022. The SEC contends that Musk’s late disclosure allowed him to acquire stock at prices that did not reflect the knowledge of his significant stake, resulting in substantial economic harm to investors who sold during that period.
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The lawsuit, filed in the U.S. District Court for the District of Columbia, seeks permanent injunctive relief, disgorgement of ill-gotten gains, prejudgment interest, and civil penalties. Musk’s attorney, Alex Spiro, characterized the SEC’s actions as unfounded, claiming Musk did nothing wrong and labeling the complaint as a “sham.” Spiro signaled that the SEC had engaged in a lengthy campaign of harassment against Musk.
In a recent blog post on X, Musk referenced his contentious relationship with the SEC and shared information regarding settlement negotiations, which reportedly included a $263 million settlement offer from the SEC that he had rejected. The SEC’s lawsuit follows Musk’s significant role in advising President-elect Donald J. Trump and comes just before the anticipated shift in leadership, with Gary Gensler stepping down as SEC chair.
The SEC’s investigation into Musk began after he disclosed a controlling stake in Twitter in April 2022. Musk initially claimed he would be a passive investor but later attempted to acquire the company for $44 billion. After a contentious legal battle, Musk completed the acquisition in October 2022 and subsequently rebranded the platform as X.
Former SEC Prosecutor David Chase noted that the $263 million penalty proposed for Musk would be extraordinarily high for a disclosure violation, especially in contrast to settlements of similar cases involving other companies totaling around $3.8 million. He highlighted that the severity of penalties often hinges on the presence of fraud allegations, which the current SEC filing does not assert against Musk.
Featured image credit: Kerem Gülen/Midjourney
