The US Securities and Exchange Commission (SEC) has initiated legal action against Elon Musk over allegations that he failed to disclose his significant ownership stake in Twitter within the required timeframe.
According to the SEC complaint, Musk began acquiring shares of Twitter, now called X, in early 2022. The Tesla (NASDAQ:TSLA) leader reportedly surpassed the 5 percent ownership threshold on March 14 of that year.
Under US securities law, any investor who accumulates more than 5 percent of a company’s stock must publicly disclose their stake within 10 days. Musk reportedly delayed this announcement until April 4, 2022, 11 days past the deadline, during which time he increased his stake in the social media platform to 9 percent.
The SEC states that Twitter’s share price rose by 27 percent following Musk’s eventual disclosure, a sharp uptick that underscored the market impact of his involvement. The agency contends that Musk’s delayed announcement allowed him to purchase additional shares at a lower price, effectively saving him at least US$150 million.
The lawsuit seeks to recover these alleged gains along with an additional financial penalty.
Details of the SEC’s findings
The SEC claims Musk privately informed a Twitter board member on March 27, 2022, that he owned at least 7 percent of the company. He also reportedly expressed interest in joining the board and taking the company private.
The lawsuit alleges that these discussions further underscore the significance of his delayed disclosure, as it deprived the public and existing shareholders of critical information that could have influenced trading decisions.
The SEC also says that it has obtained private text messages and other communications between Musk and Twitter’s board, suggesting a detailed investigation into the timeline and nature of his stock purchases.
These messages are expected to play a pivotal role in the case as the agency attempts to establish intent and the extent of any regulatory violations.
Musk’s response
Musk’s legal team has dismissed the allegations, with his attorney, Alex Spiro, accusing the SEC of engaging in a ‘multi-year campaign of harassment’ against the billionaire entrepreneur.
Spiro maintains that Musk complied with disclosure rules and has argued that the agency’s claims lack merit.
Musk has frequently clashed with the SEC in the past, often criticizing the regulator’s actions and oversight. This lawsuit adds another layer to the contentious relationship between Musk and the agency.
The lawsuit arrives at a critical juncture as Musk prepares to assume a high-profile role in the Trump administration’s newly created Department of Government Efficiency, raising questions about potential conflicts of interest.
The SEC’s leadership is also set to change, with current Chair Gary Gensler planning to step down ahead of the administration transition.
Musk’s acquisition of Twitter, which was finalized in October 2022 for US$44 billion, transformed the platform into X. The deal and its fallout, including significant changes to operations and policies, have kept X in the spotlight.
Shares of Musk’s electric vehicle company Tesla were unscathed by the new SEC lawsuit. They were up 7.48 percent year-to-date gain as of midday on Wednesday (January 15).
Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.