The U.S Securities and Exchange Commission (SEC), has filed a lawsuit against Elon Musk, alleging fraud in connection with his acquisition of a substantial stake in Twitter in 2022.
The lawsuit, filed in U.S District Court in Washington D.C, accuses Musk of failing to disclose his ownership of more than 5% of Twitter shares within the legally mandated timeline, allowing him to purchase shares at artificially low prices.
Part of the lawsuit reads,
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“Defendant Elon Musk failed to timely file with the SEC a beneficial ownership report disclosing his acquisition of more than five percent of the outstanding shares of Twitter’s common stock in March 2022, in violation of the federal securities laws. As a result, Musk was able to continue purchasing shares at artificially low prices, allowing him to underpay by at least $150 million for shares he purchased after his beneficial ownership report was due.
“In early 2022, Musk began to acquire a significant number of shares of Twitter common stock. By March 14, 2022, Musk had acquired beneficial ownership of more than five percent of the company’s outstanding common stock. During the relevant time, Section 13(d)(1) of the Securities Exchange Act of 1934 (*Exchange Act”) and Rule 13d-1 thereunder required Musk to file with the SEC a beneficial ownership report disclosing his Twitter holdings within ten calendar days after crossing the five percent threshold, i.e, by March 24, 2022, in order to inform the investing public and the company that he had amassed this concentration of Twitter shares. Musk failed to do so.”
The suit further added that, on April 4, 2022, Elon Musk disclosed to the SEC that he had acquired over 9% of Twitter’s stock, causing its price to jump over 27%. However, during the 11-day delay in disclosure, Musk spent over $500 million buying shares at artificially low prices, underpaying investors by more than $150 million. This delay according to the SEC, caused significant financial harm to investors who sold their shares at suppressed prices.
Recall that Musk bought Twitter for $44 billion in late 2022 and later rebranded it as “X.” Before the acquisition, Musk had built a stake exceeding 5% in the company, which required him to publicly disclose his holdings within 10 days of crossing that threshold.
It is worth noting that the SEC had been investigating whether Musk or anyone else working with him, committed securities fraud in 2022 around the Twitter disclosures. The lawsuit seeks a jury trial and demands that Musk release his alleged unjust gains and pay civil penalties.
Amidst SEC accusation, last year December, Musk via a post on X, revealed that the commission had demanded him to either accept a monetary payment or face charges on numerous counts regarding the purchase of the shares.
In a recent email on Tuesday, Musk’s lawyer, Alex Spiro, noted 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 tack complaint.”
Responding to the SEC lawsuit, Musk described the commission as a “Totally broken organization”.
He wrote on X,
“Totally broken organization. They spend their time on shit like this when there are so many actual crimes that go unpunished.”
Musk’s acquisition of X (formerly Twitter) has been fraught with controversy. Recall that his acquisition of the social media platform faced heightened drama when he sought to back out of the deal, citing the misrepresentation of bots on the platform.
Notably, the Tesla billionaire has had a contentious history with the SEC. Given Musk’s growing political influence especially as he is set to lead a regulatory advisory group under President-elect Donald Trump, SEC’s lawsuit could attract further political scrutiny.
The Securities and Exchange Commission has filed a lawsuit against Elon Musk, accusing the entrepreneur of securities violations related to his 2022 acquisition of Twitter (subsequently renamed X). According to the suit, Musk failed to properly disclose his stock position in Twitter prior to the purchase, allowing him to continue buying shares at “artificially low prices.” Last month, Musk claimed that the SEC sent him a settlement offer to avoid a lawsuit.