The Securities and Exchange Commission filed a lawsuit Tuesday against Elon Musk, accusing the owner of X of failing to properly disclose his purchases of Twitter stock prior to his acquisition of the social media platform in 2022.
The suit, filed in federal court in Washington, D.C., alleges that Musk was required to file a “beneficial ownership” form with the SEC to disclose that he had amassed more than 5% of shares in the company by March 24, 2022. The SEC complaint states that Musk began buying up Twitter shares early in the year. By March 14, Musk owned more than 5% of the company’s outstanding stock, and thus was required to disclose the size of his stake within 10 days. The complaint states that Musk’s failure to comply cost other Twitter shareholders at least $150 million because they sold shares at lower prices without knowing that Musk was amassing shares in the company.
The complaint states that Musk revealed his purchases on April 4, 2022, after he began making plans to join the company’s board and was considering making an offer to acquire Twitter outright. Musk closed a $44 billion takeover of Twitter in late 2022 after striking a deal. The company went private the following year after 10 years as a publicly traded company. The company was renamed X in July 2023.
The complaint asserts that the failure to make timely disclosures allowed Musk to buy up more than 6 million more shares at artifically low prices. In turn, other investors were deprived of the opportunity to sell at a higher price. Had Musk disclosed his buying spree earlier, the price of Twitter shares undoubtedly would have climbed, forcing him to pay higher prices to amass his stake. By the time of his April 4 disclosure, Musk owned 9% of the company.
On the day that Musk filed the SEC’s required 13G form, the stock shot up 27% over the previous days closing price. Musk made his first public offer to acquire the company on April 13, 2022, and signed an agreement with the company on April 25, 2022.
“During the period that Musk was required to publicly disclose his beneficial ownership but had failed to do so, he spent more than $500 million purchasing additional shares of Twitter common stock. Because Musk failed to timely disclose his beneficial ownership, he was able to make these purchases from the unsuspecting public at artificially low prices, which did not yet reflect the undisclosed material information of Musk’s beneficial ownership of more than five percent of Twitter common stock and investment purpose,” the complaint states. “In total, Musk underpaid Twitter investors by more than $150 million for his purchases of Twitter common stock during this period. Investors who sold Twitter common stock during this period did so at artificially low prices and thus suffered substantial economic harm.”
Moreover, the suit alleges that Musk and his representatives were warned by the broker who handled the purchases that he was legally required to disclose his purchases.
“In or around late February 2022, the broker repeatedly suggested to Musk’s wealth manager that Musk obtain legal advice as to his obligations under the federal securities laws to publicly disclose his holdings if he became the beneficial owner of at least five percent of Twitter’s outstanding common stock,” the complaint states. “Neither Musk nor his wealth manager sought or obtained legal advice in Februaryor March 2022 as to Musk’s obligations under the federal securities laws to publicly disclose hisTwitter holdings.”
Musk attorney Alex Spiro did not immediately respond to a request for comment.
Musk has tangled with the SEC in the past. Long before he acquired Twitter, the commission sought to sanction the billionaire for statements he made about his publicly held electric car firm Tesla.
According to a report by TechCrunch, “The SEC alleged in a complaint filed in September 2018 that Musk lied when he tweeted on August 7 that he had ‘funding secured’ for a private takeover of the company at $420 per share.”
Musk has emerged in recent years as an influential figure in tech, media and pop culture. Last year he became a vocal supporter of President-elect Donald Trump. Trump has appointed Musk and entrepreneur Vivek Ramaswamy to a special commission dubbed the Department of Government Efficiency that is tasked with streamlining and shrinking the size of the federal government.
