Elon Musk, the billionaire entrepreneur and CEO of Tesla, has criticized the US Securities and Exchange Commission (SEC) over the lawsuit over his delayed disclosure of a significant stake in Twitter, now renamed X.
The lawsuit marks the culmination of the SEC’s investigation into Musk’s investing activities with the social media platform in 2022.
SEC Claims
On January 14, the SEC alleged that Musk had failed to meet the regulatory requirement to disclose his acquisition of more than 5% of Twitter stock within the mandatory ten-day period.
The financial regulator pointed out that Musk had crossed the 5% threshold on March 14, 2022, but postponed the filing of his disclosure until April 4 – 11 days after the deadline.
According to the filing:
“Because Musk failed to disclose his beneficial ownership in a timely manner, he was able to make these purchases to the unsuspecting public at artificially low prices, which did not yet reflect the undisclosed material information about Musk’s beneficial ownership of more than five percent of the Twitter common stock and investment objective.”
The SEC alleged that the delay in disclosure saved Musk more than $150 million, deprived other investors of potential financial gains and caused economic harm to those who sold their shares during that period.
In particular, the Gary Gensler-led Commission pointed out that Twitter’s stock value rose 27% after Musk finally disclosed his stake, boosting the value of his holdings to $2.89 billion.
The SEC alleges that these actions violated the Securities Exchange Act of 1934, which requires timely disclosure to prevent unfair advantages and protect market integrity.
The Commission has asked the court to impose a civil penalty and force Musk to repay the profits he would have made from the delayed disclosure.
Musk criticizes SEC
On January 15, Musk publicly dismissed the lawsuit in a post on X, calling the SEC an ineffective organization that prioritizes trivial matters over tackling serious financial crimes.
According to him:
“[The SEC is a] totally broken organization. They spend their time doing things like this when there are so many actual crimes that go unpunished.
Some industry experts have also questioned the SEC’s priorities in the matter.
John Reed Stark, a former official in the SEC’s Internet Enforcement division, described the investigation as a potential waste of resources. He suggested that Musk’s lawyers could argue that his original intent was to secure a seat on the board of directors rather than pursue a full takeover of Twitter.
Stark added:
“This case seems almost as absurd as the 2008 SEC case against Mark Cuban, and a transparent attempt by Chairman Gensler to grab some last-minute headlines days before his departure and also stick it to President Trump.”
