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Billionaire tech executive Elon Musk is being sued by the Securities and Exchange Commission (SEC) for alleged security violations related to his 2022 acquisition of Twitter, which he rebranded to X.
The SEC's lawsuit filed on Tuesday alleges that Musk—who completed his $44 billion purchase of Twitter Apr. 24, 2022—had already acquired over 5% of the company on Mar. 14 but delayed disclosing the ownership publicly by 11 days in violation of the Securities Exchange Act of 1934.
This purchase without disclosure allowed Musk to buy additional stock worth $500 million "at artificially low prices," taking his overall ownership to over 9% by Apr. 4, the SEC states in its complaint, adding: "In total, Musk underpaid Twitter investors by more than $150 million for his purchases of Twitter common stock during this period."
On Apr. 4, when Musk disclosed his beneficial ownership to the Commission, Twitter shares had shot up by 27%. Therefore, investors who sold shares between Mar. 14 and Apr. 4 "suffered substantial economic harm," according to the SEC. The Commission is seeking permanent injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties in the lawsuit.
The SEC had reportedly proposed a settlement offer in December, but Musk and his lawyer, Alex Spiro, rejected it in a strongly-worded letter to SEC Chair Gary Gensler. The letter accused the Commission of being "improperly motivated" against Musk and his companies through investigations that resulted in "more than six years of harassment."
The Twitter lawsuit could be one of Gensler's final acts as SEC chair, a post he will vacate as soon as Musk's ally, Donald Trump, takes office Jan. 20. But it's unclear if incoming regulators will pursue litigation—or ditch the case.
Earlier this week, Musk was reported as a potential TikTok buyer. The platform will be banned in the US Jan. 19 unless it finds a non-foreign owner for its domestic operations by that deadline. TikTok, however, has denied the claims that Musk might purchase the company and labeled them 'pure fiction.'