SEC Sues Elon Musk For Breaking Disclosure Rules in Twitter Takeover That Cost Investors Millions

The SEC has filed a lawsuit against Elon Musk, alleging that his delayed disclosure of Twitter stock holdings has saved him $150M and caused harm to investors.

The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Elon Musk, alleging that his delayed disclosure of a significant Twitter stake violated federal securities laws.

The complaint claims that Musk failed to report his ownership of more than 5% of Twitter stock within the required timeframe, enabling him to accumulate additional shares at a lower price. The SEC estimates that this delay saved Musk at least $150 million while disadvantaging other investors.

Timeline of Events and Allegations

Under federal law, investors who acquire more than 5% of a publicly traded company’s stock must file a beneficial ownership report within ten days.

Beneficial ownership reporting is a legal requirement under U.S. securities law that mandates investors acquiring more than 5% of a company’s stock to disclose their holdings within ten days.

This rule ensures market transparency by informing investors of significant changes in ownership that could signal corporate control shifts. Disgorgement is a legal remedy often used in SEC enforcement actions to recover profits gained through unlawful or unethical conduct, with the funds typically redistributed to harmed investors.

The SEC alleges that Musk crossed the ten day threshold on March 14, 2022, but waited until April 4—11 days past the March 24 deadline—to disclose his holdings. During the interim, Musk increased his ownership from 5% to 9% by purchasing over $500 million worth of additional shares.

“According to the SEC’s complaint, after Musk failed to timely file a beneficial ownership report by March 24, 2022, he purchased more than $500 million worth of Twitter common stock between March 25, 2022, and April 1, 2022.

As alleged, because Musk failed to timely file a beneficial ownership report with the SEC, he was able to make these purchases of Twitter common stock at artificially low prices from the unsuspecting public, who had not yet priced in the undisclosed material information of Musk’s beneficial ownership of more than five percent of Twitter common stock and investment purpose.

Musk underpaid by at least $150 million for his purchases of Twitter common stock during this period. Investors who sold Twitter common stock between March 25, 2022, and April 1, 2022, did so at artificially low prices and thereby suffered substantial economic harm.”

When Musk’s disclosure was finally made public, Twitter’s stock price surged by 27%, reflecting the market’s reaction to his involvement.

The SEC’s complaint asserts that investors who sold shares between March 25 and April 1 did so at prices artificially suppressed by Musk’s failure to disclose. These investors, according to the regulator, suffered economic harm while Musk reaped financial gains.

Conversations with Twitter Leadership

The SEC’s lawsuit also highlights Musk’s private communications with Twitter’s board of directors during this period. According to the complaint, Musk informed a board member on March 27 that he owned over 7% of the company’s stock and asked whether there had been discussions about taking Twitter private.

The board member confirmed that such conversations had occurred. Shortly thereafter, Musk acquired even more shares, solidifying his influence over the company.

These interactions suggest that Musk was actively considering a broader role at Twitter while withholding material information from the public. The SEC alleges that this strategy allowed Musk to make informed decisions about his stock purchases at the expense of transparency required under federal law.

Regulatory Context and Implications

This legal action coincides with a leadership transition at the SEC. Chairman Gary Gensler, who has been a vocal advocate for stringent enforcement, is stepping down. Gensler’s tenure has included high-profile clashes with Musk, including disputes over Tesla’s compliance with previous SEC settlements.

His departure on January 20 will make way for President-elect Donald Trump’s nominee, Paul Atkins, a former SEC commissioner known for advocating lighter regulatory oversight.

The lawsuit underscores the SEC’s commitment to ensuring transparency in financial markets. In its complaint, the agency emphasized the importance of timely disclosures, stating that such rules are designed to “prevent manipulative practices” and “protect investors.”

The SEC is seeking disgorgement of Musk’s alleged profits, civil penalties, and a permanent injunction to prevent future violations.

Musk’s Response and Legal Strategy

Musk’s attorney, Alex Spiro, has dismissed the lawsuit as baseless. In a statement to Bloomberg, Spiro described the complaint as “a single-count ticky-tack complaint” and characterized the SEC’s actions as part of a “multi-year campaign of harassment” against Musk.

He further argued that Musk has consistently complied with regulatory requirements and suggested that the agency’s focus on the billionaire was politically motivated.

Musk has also used his social media platform, X (formerly Twitter), to criticize the SEC in the past. In December, he posted a letter from Spiro rejecting a settlement offer related to the case, doubling down on claims of unfair treatment.

The outcome of this case could set a precedent for how high-profile executives are held accountable under disclosure laws. Musk’s ability to influence corporate governance and regulatory priorities raises questions about the effectiveness of existing frameworks in maintaining a level playing field for investors.

With a new SEC chairman expected to take office, the agency’s future approach to enforcement remains uncertain.

Markus Kasanmascheff
Markus Kasanmascheff
Markus has been covering the tech industry for more than 15 years. He is holding a Master´s degree in International Economics and is the founder and managing editor of Winbuzzer.com.

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