The U.S. Securities and Exchange Commission (SEC) has initiated a lawsuit against Elon Musk, accusing him of failing to disclose his substantial stake in Twitter, now rebranded as X.
Background
The lawsuit alleges that before Musk completed his $44 million acquisition of Twitter in October 2022, he had already started amassing a significant number of shares. By March 2022, Musk had acquired over 5% of Twitter’s common stock, a threshold that required disclosure to the SEC within 10 days.
Allegations
The SEC claims that Musk’s failure to disclose his stake allowed him to acquire shares at “artificially low prices”. The complaint, lodged in a federal court in Washington, D.C., accuses Musk and his wealth manager of withholding this crucial information to avoid a potential surge in Twitter’s stock price. This alleged omission enabled Musk to underpay Twitter investors by more than $150 million for his stock purchases during this period.
Key Events
- March 2022: Musk acquired over 5% of Twitter’s common stock, requiring disclosure to the SEC within 10 days.
- March 25, 2022: Musk increased his stake to 7% by purchasing nearly 3.5 million shares.
- Early April 2022: Musk formally disclosed his stake, by which time he owned over 9% of the company, causing Twitter’s stock price to rise by more than 27%.
Implications
The lawsuit is the latest development in the SEC’s inquiry into Musk’s Twitter buyout. Last month, Musk faced a deadline to settle with the SEC over his Twitter buyout, with his lawyer alleging “years of harassment” by the agency. The SEC rejected Musk’s offer to pay $2,923 for missing a deposition related to his 2022 Twitter purchase, seeking sanctions against him instead.
Reactions
Musk has previously criticized the SEC, labeling it as a “weaponized institution”. This statement came following the Fifth Circuit Court decision that the SEC exceeded its authority by approving Nasdaq’s diversity quota policy.