The US Securities and Exchange Commission (SEC) has accused Elon Musk of violating federal securities law by delaying the disclosure of his 2022 stake in Twitter, which has since been rebranded as X.
The regulator alleges that Musk’s failure to disclose his acquisition of a 5% stake in Twitter within the mandated 10-day period allowed him to purchase additional shares at lower prices, reaping substantial financial benefits.
Musk responded to the SEC’s latest actions with a tweet that reflects his long-standing criticism of the regulator and its focus on high-profile cases.
Totally broken organization. They spend their time on shit like this when there are so many actual crimes that go unpunished.
This legal challenge adds to Musk’s contentious history with the SEC, which has included high-profile disputes over his social media activity and regulatory compliance.
Musk’s $500 million Twitter share purchases
The SEC’s lawsuit centres on the allegation that Musk breached regulations by delaying his disclosure of surpassing the 5% ownership threshold in Twitter shares by 11 days.
According to the SEC, this delay gave Musk a financial advantage, allowing him to buy more than $500 million worth of Twitter stock at artificially low prices.
By the time Musk publicly disclosed his 9.2% stake on April 4, 2022, Twitter’s share price surged by over 27%, significantly increasing the value of his holdings.
The SEC contends that unsuspecting investors were deprived of a fair market opportunity as Musk leveraged his undisclosed position to his benefit.
This delay allegedly violated an SEC rule that requires investors to disclose stakes exceeding 5% within 10 calendar days.
Musk was expected to file the disclosure by 24 March 2022 but instead waited until April.
The SEC now seeks to impose civil penalties on Musk and compel him to disgorge the profits derived from the alleged infraction.
Musk’s legal battles and tussles with the SEC
This lawsuit marks another chapter in Musk’s fraught relationship with the SEC. In 2018, the regulator sued Musk over a tweet suggesting he had secured funding to take Tesla private.
That case resulted in a $20 million fine and restrictions on Musk’s social media activity.
Eariier, The SEC pursued sanctions against Elon Musk after he missed a court-ordered deposition last September related to its probe into his Twitter dealings.
Musk’s absence was reportedly due to his attendance at the launch of SpaceX’s Polaris Dawn mission in Cape Canaveral, Florida.
However, a federal judge in San Francisco denied the SEC’s request for sanctions. The decision came after Musk subsequently provided testimony and agreed to cover the SEC’s travel expenses associated with the delay.
The broader context of Musk’s financial dealings
Musk’s acquisition of Twitter culminated in its $44 billion purchase in October 2022. Since then, the platform has undergone significant changes, including a rebranding to X and strategic shifts under Musk’s leadership.
However, these transformations have been overshadowed by ongoing legal scrutiny, both from the SEC and private investors.
A separate lawsuit filed by former Twitter shareholders in Manhattan federal court also centres on Musk’s delayed disclosure.
The plaintiffs allege that the delay unfairly impacted other investors. Musk has countered that any delay was unintentional, dismissing claims that he sought to deceive shareholders.
Musk’s financial manoeuvres have also drawn attention to the outsized influence he wields across industries, from electric vehicles at Tesla to space exploration with SpaceX.
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