US SEC Alleges Musk’s Late Disclosure Allowed Him to Buy Twitter Shares at 'Artificially Low' Prices

Elon Musk Faces SEC Lawsuit Over Alleged Late Disclosure of Twitter Stake

Elon Musk has been sued by the U.S. Securities and Exchange Commission (SEC), accused of failing to disclose in time his substantial purchase of Twitter stock in early 2022.

The lawsuit claims that Musk’s delayed filing of a required ownership report allowed him to buy more shares at a lower price, resulting in significant financial advantage.

The Alleged Delay and the Impact on Share Prices

According to the SEC, Musk crossed the 5% ownership threshold of Twitter's stock by March 14, 2022, but did not file the necessary disclosure form within the legally mandated 10-day period.

Instead, Musk disclosed his purchase on April 4, 2022—11 days after the due date—by which time he owned 9.2% of Twitter.

This delayed disclosure reportedly enabled Musk to continue buying shares at "artificially low prices," benefitting from a price dip before the public knew about his stake.

When Musk’s stake was made public, Twitter’s stock surged by more than 27% on the following day, according to the SEC.

Musk’s earlier purchases, totalling over $500 million, allegedly cost investors more than $150 million in lost value, the SEC claims.

Musk Responds: ‘Totally Broken Organisation’

In response to the lawsuit, Musk took to X (formerly Twitter) to criticise the SEC, calling the regulator “a totally broken organisation.”

Musk suggested that the SEC was more focused on minor issues like his disclosure delay than on addressing more serious crimes.

Musk’s lawyer, Alex Spiro, has vehemently denied the allegations, labelling the case as a “single-count ticky tak complaint” that was a result of the SEC’s “multi-year campaign of harassment” against Musk.

Spiro added,

"Mr. Musk has done nothing wrong and everyone sees this sham for what it is."

SEC Seeks Civil Penalties and Disgorgement of Profits

The SEC is seeking civil penalties as well as a requirement for Musk to pay back any unjust profits he gained through his alleged late filing.

The lawsuit, filed in a Washington, D.C. federal court, is based on an SEC rule that mandates investors to disclose beneficial ownership of more than 5% of a company’s stock within 10 days.

In Musk’s case, the deadline was 24 March 2022.

He disclosed his purchases only on 4 April 2022, after amassing a 9.2% stake.

The SEC contends that Musk's failure to make the required disclosures in a timely manner caused harm to other investors, who were unaware of Musk’s intentions to acquire more shares and thus had no opportunity to adjust their actions accordingly.

Background on Musk’s Twitter Deal

Musk eventually acquired Twitter for $44 billion in October 2022, later rebranding the platform as X.

His purchase followed a tumultuous period of negotiation, where he initially agreed to join Twitter’s board before backing out and then proceeding with the full acquisition.

Musk’s tenure at Twitter/X has been marked by significant layoffs, including the firing of key executives, and controversial policy changes, including adjustments to its approach to misinformation.

In addition to this SEC lawsuit, Musk is facing other legal challenges related to his purchase of Twitter, including a class action lawsuit filed by former shareholders who claim they were defrauded by the delayed disclosure.

A Long-Standing Tension Between Musk and the SEC

Musk’s relationship with the SEC has been strained for years.

The SEC previously sued him in 2018 over his Twitter posts about potentially taking Tesla private.

That case ended with a settlement, where Musk paid a $20 million fine and agreed to have some of his tweets reviewed by Tesla lawyers.

Musk’s ongoing legal battles with the SEC have drawn attention to his defiant stance towards regulatory authorities.

Musk’s attorney, Alex Spiro, described the latest case as a minor procedural issue, saying, "This offense, even if proven, carries a nominal penalty."

Musk’s Potential Legal and Financial Risks

While the SEC’s complaint does not specify the amount Musk could be required to pay in penalties, the lawsuit represents a serious escalation in the ongoing legal challenges Musk faces regarding his Twitter acquisition.

The SEC’s request for a jury trial signals its commitment to pursuing the case to trial, a process that could ultimately lead to further legal complications for the billionaire entrepreneur.