The Securities and Exchange Commission (SEC) has filed a lawsuit against Elon Musk, alleging that the billionaire failed to disclose his substantial stake in Twitter in a timely manner, violating securities laws. The complaint, filed in U.S. District Court in Washington, D.C., claims Musk's delay allowed him to purchase shares at "artificially low prices," causing harm to shareholders.
The lawsuit focuses on Musk's accumulation of a more than 5% stake in Twitter in early 2022, a threshold that legally requires disclosure within ten calendar days. According to the SEC, Musk delayed reporting his ownership by more than ten days, during which he continued to purchase additional shares. The SEC asserts this secrecy resulted in Musk underpaying for shares by over $150 million.
The SEC's civil complaint states Musk crossed the 5% ownership mark in March 2022 but did not disclose his holdings until April 4, 2022. The day he filed the required report, Twitter's stock price surged by 27%. The agency argues that Musk's delay deprived the market of critical information that would have impacted the stock's valuation. The SEC is seeking a jury trial and civil penalties, along with the disgorgement of any gains Musk allegedly obtained as a result of the delayed disclosure.
The lawsuit also alleges Musk spent more than $500 million acquiring Twitter shares during the period of delayed disclosure, which the SEC claims was detrimental to other shareholders. "The actions allowed Musk to acquire shares from the public without their knowledge of his significant interest in the company," the SEC's complaint contends.
Musk, who acquired Twitter for $44 billion later in 2022 and rebranded it as X in 2023, has publicly criticized the SEC's actions. In a post on X, he described the regulatory body as "a totally broken organization," alleging it focuses on trivial matters while ignoring more significant issues.
Musk's attorney, Alex Spiro, defended his client, stating that Musk "has done nothing wrong" and accusing the SEC of pursuing a baseless case. "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 under Section 13(d) for an alleged administrative failure to file a single form - an offense that, even if proven, carries a nominal penalty," Spiro said in a statement.
This lawsuit adds to Musk's ongoing legal challenges. The Oklahoma Firefighters Pension and Retirement System previously sued him in 2022, accusing him of withholding information about his growing stake in Twitter to the detriment of other shareholders. That case is still pending in federal court in New York.
Musk's acquisition of Twitter came after a protracted battle that began with his surprise disclosure of his stake in April 2022. After initially agreeing to join Twitter's board, Musk later opted out, eventually making an unsolicited $44 billion bid for the company. The acquisition process was fraught with controversies, including Musk's attempt to back out of the deal over concerns about Twitter's handling of bots on its platform. The deal ultimately closed in October 2022.
The SEC's latest case also underscores the regulatory scrutiny Musk has faced throughout his career. In 2018, the SEC charged Musk with securities fraud over a tweet claiming he had "funding secured" to take Tesla private. That case resulted in a settlement requiring Musk and Tesla to pay $20 million each and Musk to step down as Tesla's chairman temporarily.
Musk's allies have been quick to criticize the SEC's lawsuit, particularly as President-elect Donald Trump prepares to take office. Trump, a vocal critic of SEC Chairman Gary Gensler, has announced plans to replace him with Paul Atkins, signaling a potential shift in the agency's enforcement priorities.