Elon Musk is in hot water with the SEC. On Tuesday, the Securities and Exchange Commission sued the billionaire, claiming he failed to disclose his Twitter stake in time. The lawsuit is seen as a final jab by outgoing SEC chief Gary Gensler.
Late disclosure: a costly mistake?
In a Washington, DC court filing, the SEC argued that Musk’s late disclosure allowed him to buy Twitter shares at discounted prices, underpaying by at least $150 million. Musk’s lawyer, Alex Spiro, quickly shot back, calling the case a “sham” and insisting that Musk had done nothing wrong.
What the SEC wants
The SEC wants Musk to pay a civil fine and forfeit the profits he allegedly gained unfairly. Musk, who later bought Twitter for $44 billion and rebranded it as X, could be in for a significant financial penalty if the SEC gets its way.
The timeline of Musk’s purchases
Back in March 2022, Musk started purchasing Twitter shares. Under SEC rules, investors must disclose their holdings once they surpass 5% ownership. The SEC claims Musk didn’t file his disclosure until April 4, 2022—11 days late. By that time, he owned more than 9% of the company.
After Musk’s delayed filing, Twitter’s stock spiked more than 27%. The SEC believes this jump in price directly ties to Musk’s late disclosure.
Legal team’s response
Musk’s legal team admitted that the filing was late. However, they strongly object to the SEC’s hefty penalty demands. The agency wants Musk to pay $178 million for the late filing, plus $45 million in interest and a $40 million fine.
Spiro fired back, warning the SEC that if the case goes to court, Musk will push to see how other similar cases were handled. He claims this could prove the SEC’s decision is arbitrary.
The SEC’s settlement offer
The SEC’s settlement offer in December, demanding a whopping $263 million from Musk, was rejected. Musk mocked the offer in a December 12 post on X, saying, “Oh Gary, how could you do this to me?”
Legal experts weigh in
The SEC declined to comment on the ongoing lawsuit, but Spiro made his frustration clear. He criticized the SEC’s actions, calling them excessive and punitive.
Former SEC prosecutor David Chase, not involved in the case, said $263 million for a disclosure violation is “extraordinarily high.” He pointed out that the SEC recently settled similar cases for much smaller sums. In September, the SEC settled with 25 entities and individuals, including Alphabet and Goldman Sachs, for just $3.8 million over similar disclosure violations.
Without any allegations of fraud or intentional harm, Chase said the SEC’s penalty seems excessive. “I don’t care if it’s Musk or Santa Claus,” he said. “That’s an extraordinary amount.”
What’s next for musk and the SEC?
Musk’s legal team has suggested that the new SEC chair, Paul Atkins, might reconsider the case when he takes office.
For now, it looks like this legal battle is far from over.
