SEC sues Elon Musk for allegedly failing to properly disclose his Twitter ownership stake

FILE - Elon Musk reacts during an in-conversation event with Britain's Prime Minister Rishi Sunak in London, Thursday, Nov. 2, 2023. IBM has stopped advertising on social media platform X after a report said its ads were appearing alongside material praising Adolf Hitler and Nazis — a fresh setback as the site formerly known as Twitter tries to win back big brands and their ad dollars.(AP Photo/Kirsty Wigglesworth, Pool, File) (Kirsty Wigglesworth/AP)

New York (CNN) — The US Securities and Exchange Commission sued Elon Musk on Tuesday for allegedly failing to properly disclose his ownership of X, then known as Twitter, as required by federal law, which allowed him to buy shares of the platform at “artificially low prices.”

Before he closed his US$44 billion deal to buy Twitter in October 2022, Musk began to acquire a “significant number” of Twitter shares. By mid-March 2022, he owned more than 5 per cent of the company’s common stock and was required to disclose that to the SEC within 10 calendar days. The filing alleged that Musk failed to disclose that information until April 4, 2022.

“Had Musk and his wealth manager disclosed his ownership as required, the stock price would likely have increased significantly,” the suit alleged.

In a statement to CNN, Musk’s lawyer Alex Spiro said that “Musk has done nothing wrong” and that the lawsuit was “an admission by the SEC that the they (sic) cannot bring an actual case.”

He added that “the SEC’s multi-year campaign of harassment against Mr. Musk culminated in the filing of a single-count ticky tak complaint against Mr. Musk under Section 13(d) for an alleged administrative failure to file a single form — an offense that, even if proven, carries a nominal penalty.”

In keeping these purchases at low prices, Musk “underpaid Twitter investors by more than $150 million for his purchases of Twitter common stock during this period,” according to the complaint, which was filed in DC federal court.

By the close of March 24, 2022, Musk had increased his stake in the company to more than 7 per cent, according to the lawsuit. The next day, he purchased almost 3.5 million shares. Over the next few days, he also expressed interest in acquiring Twitter to members of the company’s board of directors.

Musk joined Twitter’s board and formally disclosed his stake in the company in early April 2022, according to the lawsuit. By the time he disclosed his stake, he owned more than 9 per cent of the company and “Twitter’s stock price increased more than 27 per cent,” the suit said.

“Musk paid significantly less for the shares of Twitter common stock he purchased between March 25, 2022 and April 1, 2022 than if he had timely disclosed,” the suit said, adding that he spent more than $500 million acquiring shares during that time period.

The lawsuit is one of the last moves under SEC Chair Gary Gensler, who is stepping down this month following President-elect Donald Trump’s vow to fire him. It’s unclear if the incoming SEC head will pursue the lawsuit – Musk is a major supporter of Trump and is taking a front-facing role in the administration as co-head of the newly created Department of Government Efficiency. Musk has clashed with Gensler for years, even mocking him on X.

The SEC has been probing the Tesla and SpaceX CEO over his acquisition of the social media platform. In December, Musk disclosed on the social media that the agency had demanded that he pay a fine of an undisclosed amount to settle charges over his purchases of Twitter shares, according to a letter from his attorney Alex Spiro.

Last year, he ran into trouble with the commission because he failed to appear for testimony in the investigation.

CNN’s Chris Isidore and Clare Duffy contributed to this report.