The U.S. Securities and Exchange Commission (SEC) filed a civil lawsuit against Elon Musk on Tuesday, accusing him of violations of securities law during his acquisition of Twitter in 2022. According to the complaint, Musk allegedly failed to properly disclose his rising stake in the social media platform in a timely manner, a move the SEC claims allowed him to purchase shares at “artificially low prices” and underpay by at least $150 million.
The Allegations and Timeline
The SEC’s lawsuit, filed in U.S. District Court in Washington, D.C., alleges that Musk crossed the 5% ownership threshold in March 2022 while purchasing shares of Twitter. Under U.S. securities law, investors acquiring more than 5% of a publicly traded company are required to disclose their holdings within 10 calendar days. However, the complaint states Musk delayed his disclosure for over ten days, filing it only on 4 April 2022, by which time his stake had exceeded 9%.
According to the SEC, this delay denied the market critical information about Musk’s significant ownership in Twitter. The late disclosure reportedly led to Musk acquiring additional shares at favourable prices before the market could adjust to his interest. Notably, when Musk finally disclosed his position publicly, Twitter’s stock price surged by more than 27%, highlighting the material impact of his stake on market dynamics.
“Musk’s actions allowed him to purchase stock from the unsuspecting public at artificially low prices,” the SEC complaint alleges, adding that in the interim period, Musk spent over $500 million acquiring more Twitter shares, resulting in underpayments to shareholders by at least $150 million.
The SEC has requested a jury trial and is seeking repayment of the profits Musk allegedly gained unfairly, along with civil penalties. The agency also characterised this lawsuit as part of its broader focus on enforcing securities laws and ensuring transparency in the financial markets.
Musk’s Response and SEC Criticism
Elon Musk’s legal representative, Alex Spiro, issued a scathing statement in response to the SEC’s lawsuit, branding it as an unfounded “sham” and accusing the agency of a “multi-year campaign of harassment” against Musk. Spiro maintained that the tech billionaire had committed no wrongdoing and dismissed the suit as a “ticky-tack complaint” without substantial grounding.
Following the SEC complaint, Musk took to X (formerly Twitter) to criticise the agency, calling it a “totally broken organisation.” Musk argued that the SEC’s focus on his actions came at the expense of addressing what he described as “actual crimes” that go unpunished.
This is not the first time Musk has clashed with the SEC. The agency has previously scrutinised Musk’s actions, including charging him with securities fraud in 2018 over tweets claiming he was considering taking Tesla private at $420 a share, funding secured. That case was eventually settled with Musk and Tesla each paying $20 million in fines, though it led to Musk stepping down as Tesla’s board chairman temporarily.
The latest SEC suit does not reference Musk’s prior settlements; however, it adds another layer of legal entanglements for Musk, whose turbulent takeover of Twitter has been widely documented.
The Background of the Twitter Saga
Musk’s purchase of Twitter was one of the most high-profile acquisitions of 2022. It culminated in a $44 billion deal and saw the tech magnate rebrand the platform as X. However, Musk’s path to ownership was far from smooth, riddled with legal wrangling and corporate drama.
Initially, Musk was slated to join Twitter’s board after his shareholding became public knowledge. That plan was abandoned in favour of a full acquisition bid in April 2022. While Twitter’s board eventually accepted Musk’s offer, the months that followed were marked by efforts from Musk to back out of the deal, alleging that Twitter had misrepresented the prevalence of bots on its platform.
Ultimately, the purchase was closed in October 2022 after legal battles and public spectacle, which included Musk famously entering Twitter’s headquarters with a sink and tweeting, “Entering Twitter HQ – let that sink in!” on the same day.
Since then, Musk has implemented sweeping changes on the platform, including rebranding it as X and introducing controversial subscription models that have drawn mixed reviews.
SEC’s Approach Amid Political Developments
This lawsuit comes amid a dynamic backdrop of political influence over regulatory bodies. President-elect Donald Trump, whose second term begins on 20 January, has expressed intentions to overhaul agencies like the SEC. Trump has previously vowed to dismiss SEC Chairman Gary Gensler and replace him with Paul Atkins, further stirring speculation about the trajectory of securities law enforcement.
Gary Gensler, whose term began under President Joe Biden, has already announced he will resign from his post before Trump’s administration begins. Observers are keenly watching whether the change in administration will impact ongoing cases, including those involving high-profile figures like Musk.
A Broader Legal Battle in the Spotlight
Musk is also embroiled in a separate civil lawsuit stemming from his Twitter acquisition. The Oklahoma Firefighters Pension and Retirement System filed a case in April 2022, alleging that Musk manipulated other shareholders by failing to reveal his gradual investments and intent to purchase Twitter. The pension fund claims this lack of transparency left investors at a disadvantage, swaying decisions that directly affected shareholder value.
While that case, Rasella v. Musk, is pending in federal court in New York, the SEC’s suit adds significant weight to the regulatory scrutiny faced by Musk and his business dealings. Regulatory experts and market analysts are closely monitoring developments as the legal battle unfolds. If found liable, Musk could face financial penalties and further damage to his already contentious relationship with the SEC.
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