The United States' Securities Exchange Commission (SEC) has filed a lawsuit against Elon Musk, saying Musk did not correctly disclose his stake in Twitter in a bid to stop its share price from increasing.
Musk acquired Twitter, now known as X, in October 2022. According to the SEC, Musk owned more than 5% of common stock by March of that year, but did not disclose this to the SEC within 10 days as required.
“On April 4, 2022, eleven days after a report was due, Musk finally publicly disclosed his beneficial ownership in a report with the SEC, disclosing that he had acquired over nine percent of Twitter’s outstanding stock,” according to the SEC’s legal complaint. “That day, Twitter’s stock price increased more than 27% over its previous day’s closing price.”
The SEC has alleged that Musk purchased more than US$500 million worth of Twitter shares during the eleven days between the agency’s disclosure deadline and his eventual filing.
“In total, Musk underpaid Twitter investors by more than US$150 million for his purchases of Twitter common stock during this period,” the SEC said. ““Investors who sold Twitter common stock during this period did so at artificially low prices and thus suffered substantial economic harm.”
SEC guidelines require investors to inform the agency once they acquire at least 5% ownership in any company.
A pending lawsuit filed by shareholders in 2022 also argued Musk’s delayed disclosure of his 5% ownership stake artificially prevented Twitter’s share price from rising.
The SEC filed its complaint in a Washington, D.C. federal court. It has asked that Musk pay both a civil penalty and “disgorgement of his unjust enrichment”.
"Today's action is an admission by the SEC that they cannot bring an actual case," said Alex Spiro, Musk’s attorney. “Mr. Musk has done nothing wrong and everyone sees this sham for what it is.”
SEC Chair Gary Gensler will leave the agency on 20 January, following the inauguration of president-elect Donald Trump. Trump has said he will nominate Paul Atkins, who served as an SEC commissioner under President George W. Bush, to succeed Gensler.
