WASHINGTON (CN) — The Securities and Exchange Commission sued billionaire Elon Musk on Tuesday, claiming he failed to properly disclose his purchase of Twitter stocks in 2022 — allowing him to underpay by at least $150 million.
The suit, brought in the U.S. District Court for the District of Columbia, comes in the waning days of SEC chair Gary Gensler’s term and sets up an early battle over the commission’s independence under President-elect Donald Trump’s nominee Paul Atkins.
The conduct described in the lawsuit occurred between March 14 and April 4, 2022, just 10 days before Musk officially offered to buy the company outright for $44 billion. In July 2022 he tried to back out of the purchase, but Twitter sued to force the deal through.
Musk officially purchased Twitter in October 2022, then later changed the company’s name to X, a title he has tried to popularize since the 1990s when he co-founded an online bank called X.com that later merged with PayPal’s parent company, where he again tried to rebrand the company as X.
According to the SEC, after Musk acquired more than 5% of the outstanding shares of Twitter’s common stock on March 14 — the threshold at which Musk acquired “beneficial ownership” in the company — he failed to report the acquisition for 21 days.
Musk’s misrepresentations allowed him to continue purchasing shares at artificially low prices until disclosing on April 4 that he had acquired over 9% of Twitter’s stock. Later that day, Twitter’s stock price jumped over 27% compared to its closing price on April 3.
During those 11 days, Musk spent more than $500 million acquiring additional stocks, which he otherwise would have paid over $650 million had he disclosed his purchases and investment purpose. As result, investors who sold Twitter stock during that period suffered significant economic harm, the SEC says.
The commission requires the regulatory filings to allow investors in the marketplace to monitor moves made by large investors and for potential takeover bids. The beneficial ownership threshold grants a shareholder voting and investment power in a company.
Musk did not directly address the lawsuit in a post on X, but instead replied to a post by Billy Markus, the creator of the meme cryptocurrency “Dogecoin,” who questioned the SEC’s assertion that Musk bought the shares at artificially low prices.
“Totally broken organization,” Musk said in his reply. “They spend their time on shit like this when there are so many actual crimes that go unpunished.”
The lawsuit comes as Musk has positioned himself as a close adviser to Trump, first appearing with the president-elect throughout the campaign cycle then being tapped to co-lead an advisory panel, called the Department of Government Efficiency (or “DOGE”) with Vivek Ramaswamy.
According to the commission, Musk was fully aware that public knowledge of his stock buys would cause Twitter’s common stock price to substantially increase, so he intentionally ignored the advice of a broker Musk tasked with purchasing large blocks of shares that he obtain legal advice as to his securities obligations.
After the initial purchases, between Jan. 31, 2022, and Feb. 28, 2022, Musk instructed the broker to continue purchasing shares up to and beyond the 5% threshold. On March 14, the broker purchased approximately 2.8 million shares, pushing Musk beyond the 5% mark, which gave him until March 24 to report his acquisition.
By March 24, Musk continued purchasing shares until he held more than 7% of the outstanding Twitter common stock.
The next day, Musk purchased almost 3.5 million shares at $38.20 per share, bringing his total to 8% of all shares by the end of March 25.
According to the SEC, Musk then privately informed a member of Twitter’s board of directors on March 27 that he owned at least 7% of the company’s stock.
Over the next five days, Musk purchased an additional 9.7 million shares, before his wealth manager consulted an attorney on April 1 regarding Musk’s disclosure obligations. On April 3, Musk was formally offered a seat on Twitter’s board of directors. He finally filed a beneficial ownership report on April 4, 11 days late and reflecting 9% — more than the threshold 5%.
The SEC wants a federal judge to determine whether Musk violated the law, and if so, enjoin him from further violations, order he disgorge his “unjust enrichment” and pay a civil penalty. The SEC seeks a jury trial in the case.