On Tuesday, the US Securities and Exchange Commission (SEC) initiated a lawsuit against Elon Musk, alleging that he delayed disclosing his significant acquisition of Twitter shares in 2022. Musk, recognized as the world’s wealthiest individual, is accused of failing to inform the public promptly about his growing stake in the social media platform, which he subsequently acquired.
According to a complaint filed in federal court in Washington, D.C., Musk purportedly breached federal securities laws by taking 11 days longer than permitted to reveal that he had acquired five percent of Twitter’s common shares.
Under SEC regulations, investors are mandated to report their shares when they surpass the five percent ownership threshold within a 10-day window. Musk’s disclosure should have occurred by March 24, 2022, but he did not reveal his purchases until April 4, 2022, by which point his stake had increased to 9.2 percent.
The SEC contends that Musk’s actions allowed him to purchase more than $500 million (approximately Rs. 4,324 crore) worth of Twitter shares at artificially depressed prices, benefiting from the lack of timely information provided to other investors.
Following Musk’s public announcement, Twitter’s stock surged by over 27 percent, according to the SEC.
In its lawsuit, the SEC is seeking a civil monetary penalty against Musk and demands that he return profits obtained through his alleged non-disclosure.
Musk eventually acquired Twitter for $44 billion (around Rs. 3,80,501 crore) in October 2022 and later rebranded the platform as X.
Alex Spiro, Musk’s attorney, characterized the SEC’s legal action as the culmination of a prolonged harassment campaign against his client. He claimed in a statement that the lawsuit reflects the SEC’s inability to substantiate a legitimate case and maintains that Musk has acted appropriately throughout the process.
Spiro noted that the lawsuit revolves around what he described as a minor “administrative failure” that, if proven, would result in a minimal penalty.
Additional Legal Challenges Regarding Twitter Transactions
As reported by Forbes, Musk, an adviser to former President Donald Trump, boasts a net worth of $417 billion (approximately Rs. 35,80,249 crore), primarily driven by his enterprises, including the electric vehicle manufacturer Tesla and the aerospace firm SpaceX. His wealth is nearly double that of Jeff Bezos, the founder of Amazon, who has a net worth of $232 billion (about Rs. 20,06,391 crore).
In an interesting timeline, the SEC filed its lawsuit against Musk just six days before Trump’s inauguration on January 20. With SEC Chair Gary Gensler expected to step down on that same day, Paul Atkins, Trump’s nominee to take over, is likely to reassess numerous rules and enforcement actions put in place by Gensler.
Musk is also facing a separate lawsuit in Manhattan federal court from former Twitter shareholders concerning the delayed disclosure of his stock purchases. In that litigation, he has claimed that any delay was unintentional and that there was no intent to deceive other shareholders.
Historically, Musk has had a contentious relationship with the SEC, highlighted by a 2018 lawsuit regarding his social media posts about potentially taking Tesla private. He settled that case by paying a $20 million (roughly Rs. 172 crore) penalty and agreeing to changes in how Tesla manages communications.
The SEC has also requested sanctions against Musk due to his absence from a court-mandated testimony last September concerning the Twitter investigation, as he opted to attend the launch of SpaceX’s Polaris Dawn mission instead. However, a federal judge dismissed this request after Musk eventually provided testimony and offered to cover the SEC’s travel expenses.
The legal case is officially recorded as SEC v. Musk, U.S. District Court, District of Columbia, No. 25-00105.
© Thomson Reuters 2024
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