Federal Lawsuit Filed Against Elon Musk for 2022 Purchase of Twitter Shares
In a significant development, the Securities and Exchange Commission (SEC) has filed a lawsuit against tech entrepreneur Elon Musk, accusing him of violating securities laws by failing to disclose his acquisition of Twitter stock in a timely manner.
The lawsuit alleges that Musk, who surpassed a 5% ownership threshold in Twitter, did not file the mandatory disclosure within the legally required 10-day period as stipulated under Section 13(d) of the U.S. Securities Exchange Act of 1934. This delay, according to the SEC, allowed Musk to accumulate additional shares at a lower price, potentially saving him up to $150 million and disadvantaging other investors who lacked critical information about his growing stake.
The consequences Musk could face if the SEC prevails include significant financial penalties, restrictions on his future business activities, and the disgorgement of profits obtained through the delayed disclosure. The SEC is seeking a civil penalty as well.
Musk's legal team has denied any wrongdoing, calling the SEC's lawsuit a "sham." Alex Spiro, a lawyer for Musk, has stated that the lawsuit is an "admission" of wrongdoing by the Securities and Exchange Commission.
The case, which remains ongoing, is closely watched because of its potential implications for how large shareholders in public companies must disclose their stakes and for corporate governance norms. The SEC's claim that investors who sold Twitter stock during this period suffered substantial economic harm due to artificially low prices underscores the regulatory emphasis on transparency and equal access to market-moving information for investors.
This case underscores the importance of timely disclosures in maintaining market transparency and protecting investor interests. It is worth noting that Musk has had an adversarial relationship with the SEC for years, with the most prominent instance being the SEC's lawsuit against Musk during the first Trump administration over "misleading" tweets about plans to make Tesla private.
Musk spent over $500 million acquiring Twitter shares in an 11-day period, and shortly after Musk announced his position, Twitter's stock price surged by more than 27%. It is unclear whether the Securities and Exchange Commission will continue litigating the complaint after Donald Trump takes office on January 20.
Marc Fagel, a former SEC attorney, told POLITICO that it would be unprecedented for the SEC to dismiss a claim. Fagel stated that "SEC enforcement should not be a creature of politics. Political influence or consideration should not be a factor." Spiro, on the other hand, claims that the SEC cannot bring an actual case because Musk has done nothing wrong and has waged a "multiyear campaign of harassment" against Musk.
Despite the ongoing legal battle, Musk has maintained a defiant stance, telling 60 Minutes that he does "not respect the SEC." The case is a testament to the complex relationship between corporate governance, disclosure requirements, and the actions of influential shareholders in the stock market.
The SEC's lawsuit against Elon Musk involves allegations of violation related to business operations and finance, specifically the failure to disclose his Twitter stock acquisition in a timely manner as required by securities laws. If the SEC prevails, Musk may face financial penalties, business activity restrictions, and the requirement to return profits gained from the delayed disclosure.
