SEC Files Charges Against Elon Musk for Delayed Disclosure of Initial Twitter Stake, Resulting in $150 Million Benefit

This content is not intended as investment advice. The author does not hold any positions in the stocks discussed.

The SEC’s Lawsuit Against Elon Musk: A Legal Battle Unfolds

In a significant move just before stepping down, Gary Gensler, the outgoing Chair of the Securities and Exchange Commission (SEC), has initiated a lawsuit against billionaire entrepreneur Elon Musk. This development signals the beginning of what could be a contentious legal dispute.

“The SEC filed a lawsuit against Elon Musk on Tuesday, alleging the billionaire committed securities fraud in 2022 by failing to disclose his ownership in Twitter and buying shares at ‘artificially low prices.’”- CNBC

— Evan (@StockMKTNewz) January 14, 2025

The Context of the Allegations

The SEC’s allegations are rooted in Musk’s failure to timely disclose his 9.2 percent stake in Twitter—recently rebranded as X. The initial disclosure, made on April 4, 2022, came after Musk had surpassed a critical ownership threshold of 5 percent as early as March of the same year. According to SEC regulations, such disclosures are required to occur within a ten-day window after crossing this threshold. The delay in disclosure potentially resulted in a loss of $150 million in value for the agency.

Legal Obligations Under the Hart-Scott-Rodino Act

Under the Hart-Scott-Rodino Act, any entity or individual acquiring a 5 percent stake in a public company is obligated to report their ownership promptly—usually within ten days. This regulation is designed to enhance transparency and protect investors.

Musk’s Compliance and Subsequent Developments

In a twist of events, despite initially agreeing to testify as part of the SEC’s ongoing inquiry in May 2024, Musk failed to appear for the deposition. This noncompliance prompted the SEC to pursue sanctions against him in a federal court in San Francisco.

Subsequently, in December 2024, Elon Musk’s legal counsel, Alex Spiro, revealed that the SEC pushed Musk to settle the charges within a tight 48-hour window or face multiple charges. Moreover, Spiro mentioned an ongoing investigation concerning Neuralink, Musk’s venture focused on brain-computer interfaces. In a public statement, he vocally rejected the settlement proposal, hinting at a robust defense strategy.

Implications of the SEC’s Lawsuit

The SEC’s case highlights that Musk allegedly acquired Twitter shares valued at approximately $500 million during the period of required disclosure up to April 4, 2022. By not making an immediate and proper disclosure, Musk is accused of improperly benefiting by purchasing shares from an uninformed public at reduced prices. The implications of this lawsuit could have broader repercussions for Musk and his companies moving forward.

Source & Images