The U.S. Securities and Exchange Commission (SEC) has sued Elon Musk, alleging that the billionaire failed to disclose his acquisition of Twitter stocks within the legally required timeframe in 2022. The most surprising aspect of this lawsuit is that it took so long to arrive.
Filed in the District Court of Columbia on Tuesday, the lawsuit concerns Musk’s actions in the lead up to his reluctant $44 billion purchase of microblogging platform Twitter three years ago (which he has since rebranded to X). By March 14, 2022, Musk had purchased enough Twitter shares to place him in possession of over five percent of the publicly traded company. As such, under the Securities Exchange Act of 1934, Musk was legally obligated to file a report informing the SEC of his acquisition within 10 days.
However, rather than disclosing his purchase by March 24, Musk allegedly waited 11 days past the deadline before finally notifying the SEC on April 4. He also reportedly spent over $500 million to purchase even more Twitter shares in the interim, increasing his stake to 9.2 percent.
Once Musk did report his purchase, Twitter’s stock price skyrocketed, pushing the value of Musk’s shares up to $2.89 billion. Twitter’s stock ended the day 27 percent higher than the previous day’s closing price, driven up by news of the billionaire’s investment.
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As such, Musk’s delay in disclosing enabled him to purchase additional shares at a lower price than they would have sold for if he had fulfilled his reporting obligations. According to the lawsuit, this saved him at least $150 million. Musk’s delay also prevented other investors who sold their shares from benefiting from an increased price, the SEC stating that they “suffered substantial economic harm.”
The SEC is seeking a fine, as well as for Musk to be forced to give up the profit he gained from his alleged violation.
Reports that the SEC was investigating Musk’s Twitter stock purchase first arose in 2022, less than a month after the deal was initiated. It now seems the securities regulator is now ready to act, though whether Musk will take the lawsuit seriously is another matter. The billionaire has made no secret of his disdain for the SEC.
This isn’t the only lawsuit Musk is facing due to his delay in reporting. A class action suit was also filed against Musk in 2022 by former Twitter shareholders who sold their stocks during the gap between the billionaire’s purchase and disclosure. The case is still ongoing.
