In a significant legal development, the U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Elon Musk, alleging that the billionaire entrepreneur violated federal securities laws during his acquisition of Twitter shares in early 2022.
The lawsuit claims that Musk failed to disclose his purchase of more than 5% of Twitter’s stock within the mandatory 10-day reporting period, a delay that the SEC argues allowed Musk to continue buying shares at lower prices.
The agency contends this move saved Musk at least $150 million.
The SEC’s filing centers on the timing of Musk’s disclosures. According to the complaint, Musk began purchasing Twitter shares in January 2022 and crossed the 5% threshold by March 14, 2022.
Federal securities laws require investors to file a Schedule 13D with the SEC within 10 days of surpassing that threshold, but Musk did not make his disclosure until April 4, 2022. By that time, he had amassed a 9.2% stake in Twitter, making him the company’s largest shareholder.
The SEC alleges that Musk’s delayed disclosure allowed him to acquire additional shares at prices that did not reflect the market’s reaction to his significant investment, constituting an “unjust enrichment.”
“This case is about ensuring that all investors are on a level playing field,” said Gurbir Grewal, Director of the SEC’s Enforcement Division. “Elon Musk’s actions undermined the transparency that is critical to the integrity of our markets.”
Musk’s legal team has dismissed the SEC’s lawsuit as a “sham” and an example of regulatory overreach.
In a statement, Musk’s attorneys argued that the SEC’s claims are “meritless” and part of a broader pattern of harassment against Musk.
“The SEC has been fixated on Mr. Musk for years, bringing case after case without any merit,” the statement read.
“This lawsuit is the latest in a series of politically motivated actions aimed at chilling Mr. Musk’s innovative efforts and public statements.”
Musk himself has taken to social media to address the case, characterizing it as a “weaponization” of regulatory agencies. In a tweet, he wrote, “The SEC’s attacks are nothing new. They’ve been after me ever since I dared to question the status quo. I’ll fight this one just like I’ve fought the others.”
This lawsuit comes as Musk continues to face scrutiny over his management of Twitter, which he officially acquired in October 2022 for $44 billion.
The SEC’s allegations add to a growing list of legal challenges and controversies surrounding the entrepreneur, who also heads Tesla, SpaceX, and other ventures.
Legal analysts suggest that the case could serve as a litmus test for how the SEC enforces disclosure rules against high-profile individuals.
“If the SEC succeeds, it could set a strong precedent for timely disclosure of market-moving information,” said Jacob Friedman, a securities law expert.
“But if Musk prevails, it might embolden other large investors to take a more cavalier approach to compliance.”
The case also raises questions about the SEC’s relationship with Musk, which has been contentious for years.
The agency previously sued Musk in 2018 over his tweets about taking Tesla private, a case that resulted in a $20 million settlement and Musk stepping down as Tesla’s chairman.
The lawsuit will now move to federal court, where Musk and the SEC are expected to present their arguments.
Observers say the stakes are high not only for Musk but also for the SEC’s ability to enforce transparency rules in the financial markets.
As the legal battle unfolds, Musk’s social media commentary and his legal team’s aggressive stance suggest that the case will be anything but straightforward.
Both sides appear prepared for a protracted fight, ensuring that this lawsuit will remain a focal point in discussions about corporate transparency and regulatory enforcement in the tech sector.
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