The Securities and Exchange Commission (SEC) has filed a lawsuit against Elon Musk for failing to disclose his purchase of more than 5% of Twitter’s common stock in a timely manner in March 2022. The SEC alleges that this delay allowed Musk to buy Twitter shares at artificially low prices, resulting in him underpaying by at least $150 million. Musk’s lawyer has called the SEC case a “sham” and stated that Musk did nothing wrong.
The SEC is seeking a civil fine and for Musk to disgorge any profits he was not entitled to as a result of the delayed disclosure. Musk’s lawyer, Alex Spiro, has vehemently denied any wrongdoing on Musk’s part and criticized the SEC’s demand for a $263 million settlement as “exorbitant and unprecedented.”
The lawsuit comes after Musk revealed in a post on X that the SEC had offered him a settlement of $263 million in early December. Musk brushed off the demand in his post, but the details of the settlement offer were not disclosed. The SEC has declined to comment on the lawsuit beyond confirming its filing.
Spiro, in a letter to the SEC, acknowledged that Musk was late in filing the required disclosure, but he disputed the SEC’s proposed penalties. The SEC alleges that Musk did not disclose his stake in Twitter until April 4, 2022, 11 days after the deadline, by which time he owned over 9% of Twitter’s shares. Following the disclosure, Twitter’s share price rose by more than 27%.
The SEC rule requires investors to disclose any ownership stake exceeding 5% within 10 days. Musk eventually purchased Twitter for $44 billion in October 2022 and rebranded it as X. Former SEC Prosecutor David Chase has criticized the $263 million penalty as “extraordinarily high” for a disclosure violation and pointed out that similar violations by other entities resulted in much lower fines.
It is expected that Musk, who has close ties to President-elect Donald Trump, will seek to have the case withdrawn by the incoming SEC chair, Paul Atkins. The case highlights the ongoing legal battles and controversies surrounding Musk’s business dealings and interactions with regulatory bodies.
With Post wires.
