SEC sues Elon Musk, claims he defrauded Twitter investors out of $150 million

The lawsuit was filed in the waning days of the Biden administration, and the next administration is less likely to aggressively pursue charges against Musk. President-elect Donald Trump has chosen Musk to lead a new Department of Government Effectiveness, or “DOGE,” as part of a plan to eliminate regulations and restructure federal agencies.

New SEC leadership

SEC Chairman Gary Gensler will leave the agency, and Trump’s pick to replace him, Paul Atkins, testified before Congress in 2019 that the SEC should reduce its disclosure requirements. With the departure of Gensler and another Democrat, Republicans will have a 2-1 majority in the SEC while the Senate considers Trump’s nominee, according to a Wall Street Journal report.

This does not necessarily mean the suit will be immediately dismissed, according to the Journal. The disclosure rule is “systematically applied,” the article states.

“The new allegations against Musk may be difficult for a friendlier administration to dismiss immediately,” the WSJ wrote. “Indeed, the measure Musk allegedly violated is what regulators call a strict liability rule. Just as police officers do not have to prove that drivers intended to speed to issue a ticket, regulators do not do not have to show that an investor was intended to violate (Rule) 13D to bring an enforcement action.

The SEC said it obtained thousands of documents as part of its investigation and was investigating more than just the late disclosure. The SEC told a court in October 2023 that its investigation “concerned much more than the timing and substance of a particular filing with the SEC; it also covered all purchases of Twitter stock by Musk in 2022 and his statements and documents filed with the SEC in 2022.”

Musk’s lawyer said last month that the SEC had threatened to bring “charges on numerous counts” if Musk did not agree to settle. But the lawsuit filed yesterday focuses only on the accusation of late disclosure. Demanding a jury trial, the SEC is seeking a civil penalty and restitution of Musk’s unjust enrichment, plus interest.