SEC sues Elon Musk for allegedly failing to disclose Twitter acquisition on time

The Securities and Exchange Commission filed a lawsuit against Elon Musk on Tuesday over an alleged securities violation relating to his acquisition of Twitter, now called X.

The SEC claims Musk failed to disclose his 5% ownership stake of Twitter in a timely manner, violating federal securities law, according to a complaint filed in federal court in Washington DC. The SEC alleges Musk waited to disclose the acquisition in order to build up a larger position in Twitter at a discounted price.

This lawsuit comes during Gary Gensler’s final week as chairman of the SEC, before he steps down on January 20. Gensler and Musk have had a few spats over the last four years, including just last month when Musk mocked a settlement offer from the SEC’s office on X. However, Musk could face a friendlier SEC commissioner in just a few weeks when Trump’s nominee takes office.

The SEC complaint says Musk disclosed his acquisition of Twitter 11 days late. After purchasing more than 5% of Twitter – which Musk allegedly did on March 24, 2022 – he was required by the SEC to file a beneficial ownership report. He filed the report April 4, 2022, according to the SEC’s complaint.

During this delayed disclosure period, Musk allegedly increased his position in Twitter from a 5% stake to a 9% stake. The day Musk disclosed his acquisition with the SEC, Twitter’s stock price increased 27% over the previous day’s closing price. The SEC claims this allowed Musk to underpay for his stake in Twitter by more than $150 million.

In its complaint, the SEC proposed Musk should return the profits he reaped unjustly, and pay an additional civil penalty. Ultimately, a federal court will decide whether the SEC’s allegations have merit, and determine if Musk should be fined.

Musk’s lawyer, Alex Spiro, called this complaint an “admission” that the SEC cannot bring an “actual case,” in a statement to Bloomberg on Tuesday.

“As the SEC retreats and leaves office, the SEC’s multi-year campaign of harassment against Mr. Musk culminated in the filing of a single-count ticky tak complaint against Mr. Musk,” said Spiro to Bloomberg.

In a December post on X, Musk shared a letter from Spiro hitting on similar notes, also referencing “years of harassment” from the SEC. That letter rejected a settlement offer from the SEC around this case.

To fill Gensler’s role, President-elect Donald Trump nominated Paul Atkins, who served as SEC Commissioner during the Bush administration and is expected to be friendlier to Trump’s allies. These days, Musk is about as close to Trump as anyone, and the owner of X could face a different regulatory regime in just a few weeks.