U.S. securities regulators filed suit Tuesday in federal court in Washington in an enforcement case stemming from Elon Musk's $44 billion acquisition of Twitter Inc., now called X.
The lawsuit against Musk, who has become a close ally of President-elect Donald J. Trump, is likely to be one of the most controversial final actions of the Securities and Exchange Commission, which is headed by outgoing Chairman Gary Gensler. Those regulations could be lowered in just a few days if Trump appoints new leadership to the regulator.
The SEC alleges that Musk violated securities laws when he acquired Twitter in 2022 by accumulating a large stock position in the social media company without filing proper filings. According to the complaint, he waited 11 days to file the required disclosures with the SEC.
Regulatory filings are required so that investors in the market can monitor the movements of large investors and potential takeover bids.
The SEC said in the lawsuit that Musk's failure to disclose his position allowed him to continue buying Twitter stock at artificially low prices. This action “enabled him to underpay at least $150 million” for additional shares before belatedly disclosing his holdings, the lawsuit continued.
Over the past few weeks, Musk has mocked the SEC with posts on X about the possibility of filing a lawsuit. In December, he shared a letter his attorney Alex Spiro sent to authorities rejecting a settlement offer in the case.
Spiro on Tuesday slammed the regulator's latest filing.
Spiro said in a statement: “Today's action shows that the SEC believes that Musk can't actually sue because he did nothing wrong and everyone sees this bogus behavior as normal. That's what I acknowledged.” The agency had waged a “multi-year campaign of harassment” against Musk, but filed a “single tick-tock complaint,” Spiro added.
This is the third time the SEC has filed a lawsuit against Musk. The first case stemmed from inappropriate, market-moving posts on social media during Trump's first term in which Musk mused about taking his electric car company Tesla private.
Before filing Tuesday's lawsuit, the SEC also sought to force Musk to comply with a subpoena for a deposition.
It is unclear whether the next regulator will pursue the case because Gensler will step down when Trump takes office on Monday. The president-elect has said he intends to nominate Paul Atkins, a pro-business conservative and former SEC commissioner, to replace Gensler.
Daniel Richman, a criminal law professor at Columbia Law School, said the lawsuit appears to be part of a pattern of problems Biden administration appointees are having “on their way out.”
He said it would be up to the new administration and Trump's appointees to decide whether to “retract and dismiss” lawsuits like the one against Musk.
The SEC and the Consumer Financial Protection Bureau filed a flurry of lawsuits during the waning days of the Biden administration. As with the lawsuit against Mr. Musk, it is unclear how these last-minute actions will play out under the new administration.
Dennis Kelleher, CEO of Better Markets, a nonprofit that advocates for greater transparency on Wall Street, said the timing of the lawsuit may have been determined by Musk's resistance to deposition efforts by the SEC. He said that there is. Kelleher said most cases of this type will be resolved with the defendant simply paying a fine and without admitting or denying liability.
He said the SEC is sending a message that “billionaires who engage in litigation battles will abide by the law like any other American.”
Still, the SEC didn't bother to publicize the lawsuit.
Regulators made the filing Tuesday after the close of business on the East Coast, without the usual fanfare that accompanies major events. The news release announcing the filing of the lawsuit did not include quotes from Gensler or other senior officials at the agency, which is unusual for a lawsuit against a prominent businessman.
It was a sign that regulators may be concerned about going after the richest man on earth, who is also a close ally of the president-elect, with less than a week to go until Inauguration Day.
Musk has been by Trump's side almost every day since the presidential election. He lives almost full-time at Trump's Mar-a-Lago mansion and club in Florida, where he attends meetings and events with the president-elect.
Mr. Trump also appointed Mr. Musk to co-chair a government task force aimed at devising ways to reduce the federal budget.
The SEC has been conducting its current investigation into Musk for years, starting soon after he announced he had taken control of Twitter in April 2022.
According to the regulatory complaint, Musk began buying up Twitter shares in late January 2022. The brokerage firm that manages his stock purchases warned the billionaire's financial chief in February that Musk should seek legal advice about disclosing his position. In mid-March, Musk passed the 5% ownership threshold that required disclosure.
The SEC said in the complaint that he continued to buy Twitter stock and did not disclose his holdings until April 4. Twitter stock soared more than 27% after he announced his position.
Musk initially said in SEC disclosures that he planned to become a passive shareholder in Twitter, but quickly reversed course and proposed an outright acquisition for $44 billion. In July 2022, he tried to back out of the deal, but the company filed a lawsuit to force the deal. Musk completed the acquisition in October of the same year and later changed the company's name to X.
The SEC has been fighting Musk to force him to testify in the case. The agency filed charges against him in October 2023 to compel him to testify about stock purchases. Mr. Musk appeared in court to testify a year later. The billionaire also agreed to pay about $3,000 to reimburse the SEC for travel expenses incurred in sending employees to hear testimony.
But in November, a federal judge in San Francisco rejected the SEC's request for sanctions against Musk. The next day, Musk mocked the station with a crude joke in a post to X.
Musk's acquisition of Twitter is the subject of multiple lawsuits and investigations by federal authorities. The Federal Trade Commission investigated whether Mr. X had the resources to protect user privacy after Mr. X laid off many of his employees and several senior privacy and security executives resigned. .
The agency is also calling for Musk's ouster. Former Twitter shareholders are also suing Musk for fraud in a lawsuit related to his delay in disclosing the company's stock.
Alain Delaquérière contributed to the research.
