By Matthew Goldstein and Kate Conger
Earlier this week, U.S. securities regulators took legal action against Elon Musk in federal court in Washington related to his $44 billion acquisition of Twitter, which is now known as X.
The lawsuit targeting Musk, who has become an integral advisor to President-elect Donald Trump, is expected to be one of the more heated final actions of the Securities and Exchange Commission under Gary Gensler, its outgoing chief. Additionally, it could be compromised shortly, as Trump is anticipated to appoint new leadership for the regulatory body.
According to the SEC, in purchasing Twitter in 2022, Musk breached securities regulations by accumulating a significant stock position in the social media entity without submitting the necessary notice. The allegations state he waited 11 days before filing the obligatory disclosure with the SEC.
These regulatory disclosures are essential for investors within the marketplace, enabling them to track the activities of major investors and potential acquisition bids.
As Musk failed to reveal his position, he was able to continue purchasing Twitter shares at an artificially suppressed price, the SEC claimed in its lawsuit. This situation “permitted him to underpay by no less than $150 million” for the extra shares before he finally disclosed his stake, the lawsuit elaborated.
In recent weeks, Musk had mocked the SEC in posts on X regarding the possibility of a lawsuit being filed. In December, he posted a letter from his attorney, Alex Spiro, to the agency, which dismissed a settlement proposition in the matter.
On Tuesday, Spiro criticized the SEC’s new filing.
“Today’s action reveals the SEC’s acknowledgment that they cannot establish a legitimate case, because Mr. Musk has committed no wrongdoing, and everyone sees this charade for what it truly is,” Spiro stated in a release. He mentioned that the agency had conducted a “multiyear campaign of harassment” against Musk but only presented “a single-count trivial complaint,” he added.
This marks the third occasion the SEC has litigated against Musk. The initial lawsuit, during Trump’s first term, arose from questionable market-impacting posts on social media where Musk contemplated taking his electric car company, Tesla, private.
Prior to the lawsuit filed Tuesday, the SEC also attempted to compel Musk to adhere to a subpoena demanding his deposition.
With Gensler stepping down alongside Trump’s inauguration on Monday, it remains uncertain if upcoming regulators will continue with the litigation. Trump has expressed intentions to nominate Paul Atkins, a former SEC commissioner and pro-business conservative, to replace Gensler.
Daniel Richman, a professor at Columbia Law School specializing in criminal law, indicated that the lawsuit seems to follow a trend of actions taken by Biden administration appointees “during their final exits.”
It will be the responsibility of the new administration and Trump’s appointees to determine whether to “reconsider and drop” cases like the one against Musk, he noted.
The SEC and the Consumer Financial Protection Bureau have been actively filing numerous lawsuits in the final days of the Biden administration. As with the case involving Musk, it remains unclear how these last-minute efforts will be treated under the forthcoming administration.
Regulators filed the lawsuit on Tuesday after business hours on the East Coast, lacking the typical fanfare that often accompanies significant cases. The public statement announcing the filing did not feature a quote from Gensler or any senior official from the agency — an unusual occurrence for actions against a prominent figure in business.
This suggests that regulators might be concerned about the optics of pursuing the wealthiest individual on the planet, who is also a close advisor to the president-elect, just days before Inauguration Day.
Musk has been alongside Trump nearly every day since the presidential election. He resides almost full-time at Trump’s Mar-a-Lago estate and club in Florida, participating in meetings and events with the president-elect.
Trump has also appointed Musk as co-chair of a governmental task force focused on devising strategies to reduce the federal budget.
The SEC’s investigation into Musk has spanned several years, commencing shortly after he declared in April 2022 that he had secured a controlling interest in Twitter.
Musk began acquiring Twitter shares in late January 2022. In February, the brokerage managing his share transactions cautioned the billionaire’s financial advisor that Musk should seek legal counsel concerning the disclosure of his holdings, as indicated in the regulator’s lawsuit. By mid-March, Musk surpassed the 5% ownership threshold, which triggers a mandatory public disclosure.
He continued to buy shares of Twitter and only revealed his ownership stake on April 4, as stated in the SEC’s complaint. Following his announcement, Twitter’s stock surged by more than 27%.
Although Musk initially indicated in an SEC disclosure that he aimed to be a passive shareholder in Twitter, he soon shifted direction and proposed to acquire it entirely for $44 billion. In July 2022, he attempted to withdraw from the purchase, but the company sued to enforce the agreement. Musk finalized his acquisition that October and later renamed the company X.
The SEC has fought Musk to secure his testimony in the matter. In October 2023, the agency filed a suit to compel his testimony regarding his share acquisitions. Musk eventually testified a year later. Moreover, the billionaire consented to reimburse nearly $3,000 to cover the travel expenses incurred by the SEC in sending its employees to take his testimony.
However, in November, a federal judge in San Francisco rejected the SEC’s plea to sanction Musk. The following day, Musk mocked the agency with a crude joke in a post on X.
Musk’s takeover of Twitter has been the focus of multiple legal actions and investigations by federal authorities. The Federal Trade Commission examined whether X had the capabilities to safeguard user privacy following significant layoffs and resignations of high-level executives responsible for privacy and security.
That agency has also sought to depose Musk. Additionally, former Twitter shareholders have filed lawsuits against Musk, alleging fraud related to his delayed disclosure of his company stake.
