Written by Varun JhaJanuary 15, 2025

SEC Sues Elon Musk Over Twitter Acquisition Securities Violations

News Article

In a move that has drawn significant attention, the U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Elon Musk over his $44 billion purchase of Twitter, now rebranded as X. The lawsuit, filed in federal court in Washington, centers on Musk’s alleged violations of securities laws during his acquisition of the social media platform.

What the SEC Claims in the Lawsuit

The SEC argues that Musk violated securities laws when he purchased a large number of Twitter shares without properly informing the public. According to the SEC’s complaint, Musk failed to file the required disclosure with the agency until 11 days after he had already accumulated a significant stake in the company. This delay, the SEC claims, allowed Musk to purchase Twitter stock at a lower price, saving him at least $150 million before the disclosure was made.

These regulatory filings are crucial because they help investors stay informed about major stock purchases or takeover attempts, ensuring transparency in the market. By not disclosing his large stake, Musk allegedly took advantage of the system, buying shares at a reduced price.

Musk’s Reaction to the SEC Lawsuit

Elon Musk’s lawyer, Alex Spiro, has responded strongly to the lawsuit. In a statement, Spiro criticized the SEC for its ongoing investigations into Musk and claimed that the case against him was without merit. He described the lawsuit as an “admission” that the SEC had no real case against Musk and accused the agency of launching a “multiyear campaign of harassment” against him. Spiro also called the lawsuit a “ticky-tack complaint,” suggesting that it was a minor issue being blown out of proportion.

SEC’s History of Legal Actions Against Musk

This lawsuit marks the third time the SEC has gone to court with Musk. The first legal battle occurred when Musk made statements on social media about taking Tesla private, which led to allegations of market manipulation. The SEC has also tried to compel Musk to testify regarding his share purchases and has faced ongoing challenges in its efforts to gather information.

Musk has been vocal about his dislike for the SEC, using his platform X (formerly Twitter) to criticize the agency and its actions against him. Despite this, the SEC has continued its investigation into Musk’s dealings with Twitter.

Timing of the SEC’s Lawsuit

The timing of the lawsuit has raised questions. With the inauguration of President-elect Donald Trump just days away, there are uncertainties about whether the incoming administration will continue with the litigation. Trump has indicated that he plans to nominate Paul Atkins, a former SEC commissioner known for his pro-business stance, to replace Gary Gensler, the current SEC chair. This could change the direction of the case and other ongoing investigations.

Why the SEC is Pursuing the Case

Dennis Kelleher, CEO of Better Markets, believes that the SEC’s decision to pursue the lawsuit now might be influenced by Musk’s refusal to cooperate with a subpoena seeking his testimony. He noted that while many cases like this one are typically settled with a fine, the SEC is sending a message that even billionaires like Musk must follow the law.

However, the SEC did not make a public spectacle of the lawsuit. The agency filed the complaint after business hours, which some observers believe indicates that they are aware of the potential fallout from taking action against one of the world’s richest individuals, especially one with close ties to the incoming U.S. president.

Musk’s Controversial Takeover of Twitter

Musk’s acquisition of Twitter has been a controversial one, filled with twists and turns. His journey began in January 2022 when he started buying up Twitter stock. By March of that year, he had passed the 5% ownership threshold, which required him to disclose his position. However, Musk continued buying shares without notifying the SEC until April 4, when he finally made the disclosure. This delay led to the sharp rise in Twitter’s stock price, further fueling the SEC’s allegations.

Once Musk disclosed his stake, he made an offer to buy the company outright for $44 billion. After some back-and-forth, including an attempt by Musk to back out of the deal, the acquisition was finalized in October 2022, and Twitter was rebranded as X.

The Ongoing Investigation and Future Uncertainty

In addition to the SEC’s investigation, Musk has faced scrutiny from other government agencies. The Federal Trade Commission (FTC) has looked into whether X, under Musk’s leadership, has the resources to protect user privacy, especially after significant staff layoffs. Moreover, some former Twitter shareholders have filed lawsuits against Musk, accusing him of fraud due to the delayed disclosure of his stake in the company.

With the current legal battles and the changing leadership at the SEC, it’s unclear what direction these cases will take in the coming months. While some experts believe the new administration may reconsider or drop the lawsuits, others think the SEC may push forward with its actions to make sure Musk and other billionaires are held accountable for their actions in the marketplace.

Conclusion: The Road Ahead for Elon Musk and the SEC

Elon Musk’s legal troubles with the SEC are far from over. As the lawsuit progresses, questions about the fairness of the case, the timing of the SEC’s actions, and Musk’s potential legal strategy will continue to dominate the headlines. Whether the new administration will change the course of the investigation or allow it to proceed remains to be seen. What’s certain is that this legal battle is far from finished and could have lasting implications for Musk, the SEC, and corporate transparency moving forward.