US securities regulators sued Elon Musk in federal court in Washington on Tuesday in an enforcement action stemming from his $44 billion purchase of twitter, now called x.
He lawsuit against Mr. Muskwho has become a close adviser to President-elect Donald J. Trump, will likely be one of the Securities and Exchange Commission's most controversial final acts under Gary Gensler, its outgoing chairman. It could also be undermined in just days, when Trump appoints new leaders to take charge of the regulator.
The SEC maintains that by purchasing twitter in 2022, Musk violated securities laws by accumulating a large stock position in the social media company without filing proper notice. The complaint said he had waited 11 days before filing the required disclosure with the SEC.
Regulatory filings are necessary so that investors in the market can monitor the movements of large investors and possible takeover bids.
Because Musk did not disclose his position, he was able to continue buying twitter shares at an artificially low price, the SEC said in its complaint. The move “allowed him to underpay at least $150 million” for the additional shares before belatedly disclosing his stake, the lawsuit continues.
Over the past few weeks, Musk had teased the SEC in posts on x about the possibility of filing a lawsuit. In December, he <a target="_blank" class="css-yywogo" href="https://x.com/elonmusk/status/1867357433493872874″ title=”” rel=”noopener noreferrer” target=”_blank”>shared a letter that his attorney, Alex Spiro, had sent to the agency, rejecting a settlement offer in the case.
On Tuesday, Spiro denounced the regulator's latest presentation.
“Today's action is an admission by the SEC that they cannot bring a real case, because Mr. Musk has done nothing wrong and everyone sees this farce for what it is,” Spiro said in a statement. The agency had waged a “multi-year harassment campaign” against Musk, but filed “a single-count complaint,” Spiro added.
This is the third time the SEC has gone to court with Musk. The first lawsuit, during Trump's first term, arose from inappropriate, market-shaking social media posts in which Musk mulled taking his electric car company, Tesla, private.
Before filing the lawsuit on Tuesday, the SEC had also tried to force Musk to comply with a subpoena to take his deposition.
With Gensler resigning with Trump's inauguration on Monday, it is unclear whether the incoming regulators will continue the litigation. The president-elect has said he intends to nominate Paul Atkins, a former SEC commissioner and pro-business conservative, to succeed Gensler.
Daniel Richman, a Columbia Law School professor who specializes in criminal law, said the lawsuit appeared to be part of a pattern of matters brought by Biden administration appointees “on their way out.”
It will be up to the new administration and Trump appointees to decide whether to “roll back and withdraw” cases like the one against Musk, he said.
The SEC and the Consumer Financial Protection Bureau have filed a flurry of lawsuits in the final days of the Biden administration. As with the case against Musk, it is unclear how these last-minute actions will play out under the new administration.
Dennis Kelleher, chief executive of Better Markets, a nonprofit group that pushes for greater transparency on Wall Street, said the timing of the lawsuit could have been dictated by Musk's resistance to the SEC's effort to take a deposition. . Kelleher said most cases like this would be resolved with the defendant paying a fine and neither admitting nor denying liability.
The SEC, he said, is sending the message that “billionaires who engage in a litigation war are going to follow the law like any other American.”
Still, the SEC didn't go out of its way to trumpet the lawsuit.
Regulators filed it Tuesday after the close of business on the East Coast without the usual fanfare associated with a major case. He press release The filing announcement did not include a quote from Mr. Gensler or any other senior agency official, unusual in an action against a high-profile businessman.
It was an indication that regulators might be concerned about appearing to go after the richest person on the planet, who is also a close adviser to the president-elect, less than a week before Inauguration Day.
Musk has been at Trump's side almost every day since the presidential election. He lives almost full time at Trump's Mar-a-Lago residence and club in Florida, and attends meetings and events with the president-elect.
Trump also named Musk co-chairman of a government task force that aims to find ways to cut the federal budget.
The SEC has pursued its ongoing investigation into Musk for years, beginning shortly after he announced in April 2022 that he had amassed a majority stake in twitter.
Musk began buying twitter shares in late January 2022. In February, the broker who managed his stock purchases warned the billionaire's financial manager that Musk should seek legal advice about disclosing his position, according to the regulator's lawsuit. In mid-March, Musk surpassed the 5 percent ownership threshold, the point at which public disclosure is required.
He continued to purchase twitter shares and did not disclose his involvement until April 4, the SEC said in its complaint. After he announced his position, twitter shares soared more than 27 percent.
Although Musk initially said in an SEC disclosure that he planned to be a passive shareholder of twitter, he quickly pivoted and made an offer to buy it outright for $44 billion. In July 2022, he attempted to back out of the purchase, but the company sued to force the deal. Musk completed his purchase in October and later renamed the company to x.
The SEC has fought Musk to force him to testify in the case. In October 2023, the agency sued him in an effort to force him to testify about his stock purchases. Musk appeared to testify a year later. The billionaire also agreed to pay nearly $3,000 to compensate the SEC for travel costs he incurred in sending his employees to take his testimony.
But in November, a federal judge in San Francisco denied the SEC's request to impose sanctions on Musk. The next day, in a <a target="_blank" class="css-yywogo" href="https://x.com/elonmusk/status/1860210546345419261″ title=”” rel=”noopener noreferrer” target=”_blank”>publish in xMusk mocked the agency with a crude joke.
Musk's acquisition of twitter has been the subject of several lawsuits and investigations by federal authorities. The Federal Trade Commission investigated whether x had the resources to protect user privacy after it laid off much of its staff and after several top executives responsible for privacy and security resigned.
That agency has also tried to depose Musk. Former twitter shareholders also sued Musk, accusing him of fraud in a case related to his late disclosure of his stake in the company.
Alain Delaquérière contributed to the research.
