SEC sues Elon Musk, alleging failure to properly disclose Twitter ownership

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

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

According to the SEC’s civil complaint, filed in US District Court in Washington, DC, Musk was more than 10 days late in reporting that material information, “allowing him to underpay by at least $150 million for shares he purchased after his financial beneficial ownership report was due.”

The SEC had been investigating whether Musk, or anyone else working with him, committed securities fraud in 2022 as the Tesla CEO sold shares in his car company and shored up his stake in Twitter ahead of his leveraged buyout.

Musk said in a post on X last month that the SEC issued a “settlement demand,” pressuring him to agree to a deal including a fine within 48 hours or “face charges on numerous counts” regarding the purchase of shares.

Musk’s lawyer, Alex Spiro, said in an emailed statement on Tuesday that the SEC’s action is an admission that “they cannot bring an actual case.”

He added that Musk “has done nothing wrong” and called the suit a “sham” and the result of a “multi-year campaign of harassment,” culminating in a “single-count ticky tak 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 financial backer of Trump in the latter stages of the campaign, is poised to lead an advisory group that will focus in part on reducing regulations, including those that affect Musk’s various companies.

In July, Trump vowed to fire SEC chairman Gary Gensler. After Trump’s election victory, Gensler announced that he would be resigning from his post instead.

In a separate civil lawsuit concerning the Twitter deal, the Oklahoma Firefighters Pension and Retirement System sued Musk, accusing him of deliberately concealing his progressive investments in the social network and intent to buy the company. The pension fund’s attorneys argued that Musk, by failing to clearly disclose his investments, had influenced other shareholders’ decisions and put them at a disadvantage.

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

“On April 4, 2022, eleven days after a report was due, Musk finally publicly disclosed his beneficial ownership in a report with the SEC, disclosing that he had acquired over nine percent of Twitter’s outstanding stock,” the complaint says. “That day, Twitter’s stock price increased more than 27% over its previous day’s closing price.”

The SEC alleges that Musk spent over $500 million purchasing more Twitter shares during the time between the required disclosure and the day of his actual filing. That enabled him to buy stock from the “unsuspecting public at artificially low prices,” the complaint says. He “underpaid” Twitter shareholders by over $150 million during that period, according to the SEC.

In the complaint, the SEC is seeking a jury trial and asks that Musk be forced to “pay disgorgement of his unjust enrichment” as well as a civil penalty.

For a brief period in April 2022, after his ownership had been made public and it was known that he was the biggest shareholder, Musk was set to join Twitter’s board. However, he quickly abandoned that plan, telling the board he would not take a seat.

What followed was a six-month drama that began with Musk submitting an unsolicited bid in mid-April that was opposed by the board. Twitter’s board eventually accepted Musk’s offer later that month. Soon thereafter, Musk tried to back out, alleging that Twitter was misstating the number of “bots” on its service

Musk ultimately closed the deal in October 2022, famously walking into the company’s office in San Francisco with a sink in his hands.

“Entering Twitter HQ – let that sink in!” Musk wrote, attaching a video of his entrance.