The Securities and Exchange Commission (SEC) has filed a lawsuit against Elon Musk for alleged violations of federal securities laws related to the delayed disclosure of his substantial stake in Twitter (now X Corp.) in 2022.
Allegations of Delayed Disclosure
The SEC's lawsuit, filed on Tuesday in a Washington, D.C. federal court, accuses Musk of failing to disclose his purchase of over 5% of Twitter shares within the required 10-day period. By law, investors must report such a stake within 10 calendar days of surpassing the 5% threshold. However, Musk delayed the disclosure by 11 days past the March 2022 deadline, according to the SEC. This delay allowed Musk to acquire Twitter shares worth over $500 million at a discounted price before his purchase became public. When he eventually disclosed his 9.2% stake on April 4, 2022, Twitter's share price surged by more than 27%, benefiting Musk.
Financial Impact and Investor Consequences
The SEC argues that Musk's late disclosure harmed other investors by preventing them from making informed decisions about Twitter’s stock. According to the SEC, if the public had been aware of Musk’s interest in the company sooner, the stock price would likely have risen, causing investors to pay higher prices for their shares. As a result, the SEC claims that Musk underpaid by at least $150 million for the Twitter shares he purchased after the required filing deadline.
Musk's Response and Criticism of the SEC
Elon Musk responded to the SEC's lawsuit on X, calling the organization a "totally broken" entity. He criticized the SEC for focusing on what he called a minor issue while other significant crimes remain unaddressed. Musk's criticism reflects his long-standing conflict with the regulatory body, especially over past investigations and settlements. Musk’s legal team, led by Alex Spiro, argued that the lawsuit was a culmination of the SEC’s "multi-year campaign of harassment" against Musk.
If the court rules in favor of the SEC, Musk may face civil penalties, including fines and the possible disgorgement of improperly earned profits.
