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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 acquired an active stake in Twitter, a secret that allowed him to buy shares at “artificially low prices.”
Musk, who is also the CEO of Tesla and SpaceX, bought Twitter for $44 billion at the end of 2022 and changed its name to X the following year. Prior to the acquisition, he had built a position in the company of more than 5%, which would have required him to disclose his holdings to the public within 10 calendar days of reaching that threshold.
According to the SEC’s civil complaint, filed in U.S. District Court in Washington, DC, Musk was more than 10 days late in reporting that material information, “allowing him to pay less than at least $150 million for the stock he purchased after reports on financial beneficial ownership should.” Investors may have raised the stock had they known about Musk’s purchases and interest in the company.
The SEC was exploring whether Musk, or anyone else working with him, committed securities fraud in 2022 over the Twitter post. Musk he said in an announcement on X last month that the SEC had issued a “settlement demand,” pressuring him to agree to a deal, including a fine within 48 hours or “face charges on numerous counts” related to the stock purchase.
Musk’s lawyer, Alex Spiro, said in an emailed statement Tuesday that the SEC’s action was an admission that they “can’t make a real case.” Spiro, a partner at Quinn Emanuel, added that Musk “has done nothing wrong” and called the lawsuit a “fraud” and the result of a “year-long campaign of harassment,” culminating in a “one-point ticky tak complaint.” “
An SEC spokesman declined to comment “beyond the notice of litigation and the complaint, which is literally the actual case brought by the SEC.”
ua post on X after filing the complaint, Musk called the SEC a “completely broken organization” that focuses “on s— like this when there are so many real crimes that go unpunished.”
Musk is just a week away from having unparalleled influence in the White House as president-elect Donald Trump the second term begins on January 20. Musk, who was a major financial backer of Trump in the latter stages of the campaign, is set to lead an advisory group that will focus in part on reducing regulations, including those affecting various Musk companies.
US President-elect Donald Trump and Elon Musk watch the launch of the sixth test flight of the SpaceX Starship rocket in Brownsville, Texas on November 19, 2024.
Brandon Bell | Via Reuters
In July, Trump promised to fire the chairman of the SEC Gary Genslerwhose term began in 2021 under President Joe Biden. After Trump’s election victory, Gensler announced that he would instead resign from his post. Trump plans to nominate Paul Atkins to be the next SEC chairman.
In a separate civil suit related to the Twitter deal, the Oklahoma Firefighters Pension and Retirement System sued Musk in 2022, accusing him of intentionally concealing his progressive investments in the social network and his intention to buy the company. Lawyers for the pension fund argued that by not clearly disclosing his investments, Musk influenced the decisions of other shareholders and put them at a disadvantage.
That case, Russell vs. Muskit was filed in April 2022 in federal court for the Southern District of New York.
“The unsuspecting public”
The SEC said in Tuesday’s complaint that Musk passed the 5% mark in his ownership of Twitter in March 2022 and is required to disclose his holdings by March 24.
“On April 4, 2022, eleven days after the report was due to be filed, Musk finally publicly disclosed his beneficial ownership in a report to the SEC, disclosing that he had acquired more than nine percent of Twitter’s stock,” the complaint said. “On that day, Twitter’s stock price rose more than 27% from the previous day’s closing price.”
The SEC alleges that Musk spent more than $500 million to buy additional shares of Twitter in the time between the requested disclosure and the day of his actual filing. This allowed him to buy stock from “the unsuspecting public at artificially low prices,” the complaint said. According to the SEC, he “bribed” Twitter shareholders for more than $150 million during that period.
In the complaint, the SEC said it is seeking a jury trial and seeking that Musk be forced to “pay restitution for his unjust enrichment” as well as a civil penalty.
The suit is the latest chapter in a nearly three-year saga.
Briefly in April 2022, after Musk’s ownership was made public and it was known that he was the largest shareholder, Musk was supposed to join Twitter’s board. However, he quickly abandoned that plan, speaking to the board he didn’t want to sit down.
A six-month drama ensued that began with Musk submitting an unsolicited offer in mid-April that was opposed by the board of directors. Twitter’s board accepted Musk’s offer later that month. Soon after, Musk tried to back down, alleging that Twitter had misrepresented the number of “bots” on its service.
Musk finally sealed the deal in October 2022, famously walking into Twitter’s San Francisco office with a sink in hand.
“Walking into Twitter HQ – let that sink in!” Musk wroteattaching a video of his entry.
Musk has had other conflicts with the SEC.
In September 2018, the agency charged Musk with making “false and misleading” statements to investors when he announced via Twitter that he was considering taking Tesla private at a price of $420 per share and that he had secured funding.
Tesla stock wobbled for weeks afterward, and the deal never materialized. Musk and Tesla at the end agreed to a settlementbut revised it in 2019. Under those terms, Musk and Tesla each had to pay a $20 million fine, and Musk had to temporarily relinquish his role as chairman of Tesla’s board.
In the latest SEC complaint, the SEC did not allude to Musk’s previous securities fraud charges or the settlement agreement.
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