The SEC filed a lawsuit against Elon Musk on Tuesday, alleging that the billionaire committed securities fraud in 2022 by failing to disclose that he had accumulated an active stake in Twitter, a secret that allowed him to buy shares at “artificially priced low”.
Musk, who is also the CEO of Tesla and SpaceX, bought Twitter for $44 billion in late 2022 and changed its name to X the following year. Before the purchase, he had built up a position in the company of more than 5%, which would have required disclosure of his holding to the public.
According to the SEC’s civil complaint, filed in U.S. District Court in Washington, D.C., Musk withheld that material information, “allowing him to underpay by at least $150 million for the stock he bought after the report his financial beneficial ownership had to end”.
The SEC had been investigating whether Musk, or anyone else working with him, committed securities fraud in 2022 after the Tesla CEO sold shares in his car company and secured his shares in Twitter before its leveraged buyout. Musk said in a post on X last month that the SEC issued a “settlement request,” pressuring him to agree to a settlement that includes a fine within 48 hours or “face multiple charges” related to with the purchase of shares.
Musk’s attorney, Alex Spiro, said in an emailed statement that the action is an admission by the SEC that “they cannot bring an actual case.” He added that Musk “has done nothing wrong” and called the lawsuit a “bogus” and the result of a “year-long campaign of harassment,” culminating in a “single random 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 key financial supporter 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 affecting Musk’s various companies.
In July, Trump vowed to fire SEC Chairman Gary Gensler. After Trump’s election victory, Gensler announced that he would instead resign from his post.
In a separate civil lawsuit related to the Twitter deal, the Oklahoma Firefighters Pension and Retirement System is suing Musk, accusing him of intentionally concealing his progressive investments in the social network and intent to acquire the company. Lawyers for the pension fund argued that Musk, by failing to clearly disclose his investments, had influenced the decisions of other shareholders and put them at a disadvantage.
The SEC said Musk passed 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 a report was scheduled, Musk finally publicly disclosed his beneficial ownership in a filing with the SEC, revealing that he had purchased over nine percent of Twitter’s outstanding shares,” the statement said. complaint. “That day, Twitter’s stock price rose more than 27% compared to the previous day’s closing price.”
The SEC alleges that Musk spent over $500 million to buy more Twitter stock during the time between the required disclosure and the day of his actual filing. This enabled him to buy stock from “the unsuspecting public at artificially low prices,” the complaint said. He “underpaid” Twitter shareholders by more than $150 million during that period, according to the SEC.
In the complaint, the SEC is seeking a jury trial and asking that Musk be ordered to “pay the forfeiture of his unjust enrichment” as well as a civil penalty.
For a brief period in April 2022, after his ownership was made public and it became known that he was the largest 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 offer in mid-April that was rejected by the board. Twitter’s board eventually accepted Musk’s offer later that month. Soon after, Musk tried to back down, claiming that Twitter was misrepresenting the number of “worlds” on its service.
Musk eventually closed the deal in October 2022, walking into the company’s San Francisco office with a sink in his hands.
“Walking into Twitter HQ – let it sink in!” Musk has writtenattached a video of his introduction.
This story is developing.
