In a recent legal development, the U.S. Securities and Exchange Commission (SEC) has taken legal action against Elon Musk, accusing him of a delayed disclosure regarding his significant Twitter share acquisition in early 2022.
The SEC asserts that this delay enabled Musk to secure his stake at a reduced price, resulting in savings of $150 million. Moreover, the failure to disclose timely impacted other investors who were unaware of Musk’s involvement and missed opportunities to trade their shares at potentially higher prices.
Reasons behind SEC’s Lawsuit Against Musk
The SEC lawsuit against Musk revolves around the regulation that requires investors holding over a 5% stake in a public company to report it within ten days. Allegedly, Musk exceeded this deadline by eleven days, according to the SEC.
The SEC claims that Musk’s delayed disclosure allowed him to acquire shares at lower prices from unaware investors, stating,
“Musk’s late disclosure of beneficial ownership facilitated his purchases at artificially reduced prices from unsuspecting investors.”
Additionally, the SEC noted that on the day of disclosure, Twitter’s stock price surged by more than 27% compared to the previous day’s closing value.
Providing a timeline, the SEC details that Elon Musk started purchasing Twitter shares in early 2022 and crossed the 5% ownership threshold by March 14th. Between March 24th and April 4th, Musk reportedly spent more than $500 million on additional shares, allegedly underpaying shareholders by over $150 million.
The SEC argues that Musk’s delayed disclosure allowed him to benefit from artificially lower share prices, impacting stock valuations as his significant stake remained undisclosed.
Timing of Lawsuit and Leadership Changes
Interestingly, the timing of the SEC’s legal action aligns with notable leadership transitions as Chair Gary Gensler is set to depart on January 20th, coinciding with the commencement of Donald Trump’s presidency.
This period also corresponds with Musk’s upcoming role heading the newly established “Department of Government Efficiency” (D.O.G.E.), where he will advise the incoming administration on enhancing government operations.
These concurring developments add an intriguing dimension to the evolving legal and political narrative surrounding Musk and his association with X (formerly Twitter).
In response to the SEC’s accusations, Elon Musk criticized the organization on X, stating,
“The SEC is a completely dysfunctional body. Their focus should be on addressing genuine criminal activities rather than pursuing matters like this.”
Notably, the X community largely voiced support for Musk, with one user expressing,
Past Legal Disputes Involving Musk
This recent contention between Elon Musk and the SEC is not the first clash between Musk and the Biden administration.
In August of last year, Musk faced allegations of investor deception through Dogecoin [DOGE] manipulation and insider trading, which purportedly led to substantial financial losses.
However, on August 29th, U.S. District Judge Alvin Hellerstein dismissed the lawsuit in Manhattan, ruling in favor of Musk. The court found no definitive evidence linking Musk to deliberate market manipulation, despite the significant price fluctuations of memecoins like Pepe [PEPE], Shiba Inu [SHIB], and Dogecoin [DOGE] following his social media engagements.