SEC Files Lawsuit Against Elon Musk Over Twitter Acquisition Violations
The U.S. Securities and Exchange Commission (SEC) has initiated legal proceedings against Elon Musk, alleging that he violated securities regulations related to his acquisition of Twitter in 2022. The regulatory body claims that Musk failed to disclose his substantial stake in the company within the mandated timeframe before proposing a $44 billion buyout.
According to the SEC, Musk crossed the 5% ownership threshold on March 14, 2022, which required him to report this information within ten days. However, he did not publicly disclose his holdings until April 4, 2022, eleven days after the deadline, revealing he owned over 9% of Twitter's outstanding shares. This delay allegedly allowed him to purchase additional shares at artificially depressed prices, resulting in illicit gains estimated at over $150 million.
The SEC's investigation began in 2022, but the timing of the lawsuit is notable as it comes just days before current SEC Chair Gary Gensler is set to be replaced by Paul Atkins, a Trump appointee. Musk, a prominent supporter of the incoming president, has raised questions about whether the new leadership will continue with the lawsuit or choose to withdraw it.
The SEC asserts that by concealing his significant stake, Musk was able to acquire shares at lower prices, thereby defrauding investors who sold their stock during the period he remained silent about his holdings. The lawsuit details that Musk began purchasing Twitter shares on January 31, 2022, and was advised by his asset manager regarding the legal obligations tied to owning more than 5% of the company. On February 28, the asset manager suggested seeking legal counsel concerning these disclosure requirements.
Despite these warnings, Musk continued to buy shares and only communicated his ownership after surpassing the reporting threshold. The SEC claims that this behavior indicates a deliberate attempt to mislead the market. Following Musk's eventual disclosure, Twitter's stock price surged by over 27% in a single day.
In its filing, the SEC demands a jury trial and seeks restitution for Musk's unjust enrichment, along with penalties and interest for his alleged misconduct. Musk's legal team has characterized the SEC's actions as politically motivated, arguing that the case lacks merit and labeling it a mere formality that does not reflect any real wrongdoing on Musk's part.
This lawsuit is not Musk's first encounter with the SEC; he previously settled with the agency over allegations of fraud related to his tweets about Tesla's funding status. This history adds a layer of complexity to the current situation, as Musk faces scrutiny once again.
