SEC Sues Elon Musk Over Delayed Twitter Acquisition Disclosure

SEC Sues Elon Musk Over Twitter Acquisition

The Securities and Exchange Commission initiated legal action against Elon Musk on Tuesday. The lawsuit centers around alleged violations of securities laws related to his acquisition of the social media platform, now rebranded as X.

Delayed Disclosure Allegations

According to the SEC’s filing in federal court in Washington, D.C., Musk reportedly failed to promptly reveal his 5% ownership stake in Twitter. The commission contends that this delay was intentional, aimed at allowing Musk to accumulate a larger share of the company at a reduced cost.

The timing of this lawsuit coincides with Gary Gensler’s concluding week as SEC chairman, prior to his departure on January 20. Gensler and Musk have experienced several disagreements over the past four years, including a recent instance where Musk publicly ridiculed a settlement proposal from the SEC on X.

Details of the Alleged Violation

The SEC complaint details that Musk’s disclosure of his Twitter acquisition was delayed by 11 days. Following the acquisition of over 5% of Twitter – an event that allegedly occurred on March 24, 2022 – a beneficial ownership report was required to be filed with the SEC.

This report was ultimately submitted on April 4, 2022, as stated in the SEC’s complaint. During this period of delayed disclosure, Musk is alleged to have increased his stake in Twitter from 5% to 9%.

Impact on Stock Price and Potential Financial Gain

The day Musk disclosed his acquisition to the SEC, Twitter’s stock price surged by 27% compared to the previous day’s closing price. The SEC asserts that this price increase enabled Musk to acquire his stake in Twitter at a price lower by more than $150 million.

SEC’s Proposed Remedies

Within its complaint, the SEC has proposed that Musk relinquish any profits gained through these alleged actions and pay an additional civil penalty. The ultimate decision regarding the validity of the SEC’s claims and any potential fines will be determined by a federal court.

Musk’s Response

Alex Spiro, Musk’s legal counsel, issued a statement to Bloomberg characterizing the complaint as an “admission” by the SEC that they lack a substantial case. Spiro stated:

“As the SEC retreats and leaves office, the SEC’s multi-year campaign of harassment against Mr. Musk culminated in the filing of a single-count ticky tak complaint against Mr. Musk.”

A letter from Spiro, shared by Musk on X in December, echoed these sentiments, also referencing “years of harassment” from the SEC and rejecting a settlement offer.

Potential Shift in SEC Leadership

President-elect Donald Trump has nominated Paul Atkins to succeed Gensler. Atkins previously served as an SEC Commissioner during the Bush administration and is anticipated to be more aligned with Trump’s allies.

Given Musk’s close relationship with Trump, the owner of X may encounter a different regulatory environment within weeks. This could potentially lead to a more favorable outcome for Musk in the ongoing dispute.