Elon Musk, the world’s wealthiest man, was sued on January 14 by the United States Securities and Exchange Commission (SEC). The lawsuit alleges that Musk failed to disclose his significant stake in Twitter back in 2022 in a timely manner, which violates U.S. securities laws. The suit also alleges that, as a result, investors were financially harmed.
According to the SEC, Musk failed to disclose his accumulation of 5% of Twitter stock as required under beneficial ownership rules. For Musk, the date that the report was supposed to be filed was March 24. The SEC claims that, following his failure to disclose his accumulation of the company’s stock, he purchased about $500 million dollars worth of Twitter shares between March 25 and April 1. The lawsuit alleges that because Musk never disclosed his 5% stake in the company, the extra shares that he bought during this period were purchased at an artificially low price. In this case, Musk was able to save $150 million, thus paying much less than what he should have. The SEC also alleges that investors who sold stock in that same period did so at artificially low prices, suffering economic losses.
According to Reuters, when Musk revealed his accumulation of Twitter shares on April 4, 2022, Twitter share prices shot up by 27%. The SEC wants Musk to pay a civil fine and demands that Musk forfeit the unjust profits gained from the shares.
The law in question is the Securities Exchange Act of 1934. The SEC says that the law was passed to help investors make educated investments by providing knowledge of when someone has purchased enough stock in the company to create changes or exert influence. If the SEC’s claims against Musk are true, it would mean that Musk’s failure to disclose his stock purchases and his subsequent accumulation of Twitter shares occurred at the expense of unknowing investors who weren’t able to make an informed decision.
This is not the first time that Musk has been involved in lawsuits related to his acquisition of Twitter, now X. According to The New York Times, Musk tried to quickly back out of his deal to purchase Twitter for $44 billion in July 2022. However, the company sued him and forced him to go through with the deal, which was completed in October of that year. In that case, the SEC sued Musk to get his testimony about his purchases of Twitter stock. Of greater significance to the SEC’s most recent lawsuit against Musk, former Twitter shareholders sued him, accusing him of fraud by disclosing his purchase of the company’s shares too late.
Also according to The New York Times, the future of the case and whether or not it will continue is unclear. Gary Gensler, the current chair of the SEC, will step down following Donald Trump’s inauguration. The president-elect has nominated Paul Atkins for the post. It is up to the new administration and Atkins to decide whether or not they will continue with the lawsuit against Musk.
