The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Elon Musk, accusing him of failing to properly disclose his ownership of Twitter (now X) shares in a timely manner. The SEC claims that Musk’s delay in disclosing his stake allowed him to purchase shares at a lower price, causing other investors to lose $150 million.
Allegation of Non-Disclosure of Proprietary Information in Time:
In early 2022, Musk started purchasing a significant number of Twitter shares. By mid-March 2022, Musk owned more than 5% of the company’s shares. According to federal laws, this information must be disclosed to the SEC within 10 days. However, the SEC’s complaint states that Musk did not disclose this information until April 4, 2022.
The SEC argues, “Had Musk and his wealth managers disclosed this information in time, Twitter’s share price would have risen substantially.”
Musk’s Defense:
Musk’s attorneys have denied the allegations, with Alex Spiro stating, “Musk has done nothing wrong. This SEC lawsuit is an admission of their own weakness.” Spiro further emphasized that the SEC has only cited one administrative error, which would likely result in a minimal fine.
Big Profit from Buying Shares:
By the end of March 2022, Musk had increased his Twitter stake to over 7%, according to the SEC’s complaint. On March 25, he bought 3.5 million shares and showed interest in acquiring even more shares in the following days.
In early April 2022, Musk formally disclosed his stake by joining Twitter’s board of directors. At that point, Musk owned more than 9% of the company’s shares. According to the SEC, Twitter’s share price rose by 27% after Musk made the disclosure.
Resignation of SEC Chairman and Further Action:
Gary Gensler, the current SEC Chairman, is expected to resign soon. President-elect Donald Trump has announced that Gensler will be removed from office. Given this context, it’s uncertain whether further action will be taken on the case by the SEC’s new chairman.
Musk, a Trump supporter, serves as co-head of the newly established Department of Government Efficiency in Trump’s administration.
Tension Between SEC and Musk:
Musk and the SEC have had several confrontations in recent years. In December 2022, the SEC stated that Musk would face a penalty for purchasing Twitter shares. Musk also faced difficulties last year when he failed to attend a deposition for the SEC’s investigation.
A Question Raised by the Purchase of Twitter Shares:
Musk completed a $44 billion deal to acquire Twitter. Prior to this transaction, the SEC claims Musk benefited financially by purchasing the shares at a lower price.
While the SEC’s action accuses Musk of non-compliance with administrative regulations, the outcome of any further legal proceedings remains uncertain.