SEC Sues Musk, Alleges Failure to Properly Disclose Twitter Ownership

The SEC filed a complaint against Elon Musk on Tuesday, alleging the billionaire committed securities fraud in 2022 by failing to disclose that he had acquired an active stake in Twitter, a secret that allowed him to buy stocks at “artificially low prices”.

Musk, who is also CEO of Tesla and SpaceX, bought Twitter for $44 billion in late 2022 and changed the name to X the following year. Prior to the acquisition, he had built up a position in the company greater than 5%, which would have required disclosing his holdings to the public within 10 calendar days of reaching that threshold.

According to the SEC’s civil complaint filed in U.S. District Court in Washington, D.C., Musk was more than 10 days late in providing this material information, “which allowed him to underpay by at least 150 million dollars the shares he bought after his financial report on beneficial ownership. was due.”

The SEC was investigating whether Musk, or anyone else working with him, committed securities fraud in 2022 as the Tesla CEO sold shares of his automaker and boosted his stake in Twitter ahead of its leveraged buyout. Musk said in an article on charges” regarding the purchase of shares.

Musk’s lawyer, Alex Spiro, said in an emailed statement Tuesday that the SEC’s action is an admission that “they can’t bring a real case.” He added that Musk “did nothing wrong” and called the suit a “sham” and the result of a “year-long harassment campaign,” culminating in a “single complaint.”

Musk is just a week away from having a potentially influential role in government, as President-elect Donald Trump’s second term begins on January 20. Musk, who was a major backer of Trump in the latter stages of the campaign, is set to lead an advisory group that will focus in part on reducing regulations, including those affecting different Musk companies.

In July, Trump promised to fire SEC Chairman Gary Gensler. After Trump’s election victory, Gensler announced that he would resign from his position.

In another civil lawsuit over the Twitter deal, the Oklahoma Firefighters’ Retirement System sued Musk, accusing him of deliberately concealing his progressive investments in the social network and his intention to buy the company . Lawyers for the pension fund argued that Musk, by failing to clearly disclose his investments, influenced the decisions of other shareholders and put them at a disadvantage.

The SEC said Musk crossed the 5% ownership threshold in March 2022 and would have been required to disclose his holdings by March 24.

“On April 4, 2022, eleven days after filing a report, Musk finally publicly disclosed his beneficial ownership in a filing with the SEC, revealing that he had acquired more than nine percent of Twitter’s outstanding shares” , the complaint states. “That day, Twitter’s stock price rose more than 27% from the previous day’s closing price.”

The SEC alleges that Musk spent more than $500 million buying more Twitter stock between the required disclosure and the day it actually filed. This allowed him to purchase stock from the “unsuspecting public at artificially low prices,” the complaint states. He “underpaid” Twitter shareholders by more than $150 million during that period, according to the SEC.

In the complaint, the SEC requests a jury trial and requests that Musk be forced to “pay restitution for his unjust enrichment” as well as a civil penalty.

For a brief period in April 2022, after his ownership was made public and it was learned that he was the largest shareholder, Musk was set to join Twitter’s board of directors. However, he quickly abandoned this plan, telling the board that he would not serve.

What followed was a six-month drama that began with Musk submitting an unsolicited offer in mid-April that the board opposed. Twitter’s board ultimately accepted Musk’s offer later that month. Shortly after, Musk attempted to withdraw, alleging that Twitter had misreported the number of “bots” on its service.

Musk finally closed the deal in October 2022, walking into the company’s San Francisco office with a sink in hand.

“Enter Twitter HQ – let it in!” Musk wroteby attaching a video of his entry.

This story is developing.