Elon Musk has criticized US Securities and Exchange Commission’s (SEC) lawsuit over his late disclosure of a substantial stake in Twitter. Twitter is now rebranded X.
The lawsuit marks a culmination of the SEC’s scrutiny of Musk’s investment activities with the social media platform in 2022.
SEC Claims
On Jan. 14, the SEC claimed that Musk failed to meet the legal requirement to disclose his acquisition of more than 5% of Twitter’s shares within the mandated 10-day period.
The financial regulator pointed out that Musk surpassed the 5% threshold by March 14, 2022, but he delayed filing his disclosure until April 4—11 days past the deadline.
The filing states:
“Because Musk failed to timely disclose his beneficial ownership, he was able to make these purchases from the unsuspecting public at artificially low prices, which did not yet reflect the undisclosed material information of Musk’s beneficial ownership of more than five percent of Twitter common stock and investment purpose.”
The SEC claimed the delay in disclosure saved Musk more than $150 million and deprived investors of financial gains. It also said that those who had sold shares within that time period suffered economic damage.
Notably, the Gary Gensler-led Commission pointed out that Twitter’s stock value jumped 27% after Musk finally revealed his stake, raising his holdings’ worth to $2.89 billion.
According to the SEC, these actions violated Securities Exchange Act of 1933 which requires timely disclosures in order to protect market integrity and prevent unfair advantage.
The Commission asked the court to issue a civil fine and order Musk to refund the profits that he allegedly made through delayed disclosure.
Musk Slams SEC
Musk dismissed the case in a public post published on X in January, calling the SEC a non-effective agency that prioritises trivial issues over serious financial crimes.
He said:
“[The SEC is a] totally broken organization. They spend their time on sh*t like this when there are so many actual crimes that go unpunished.”
Some industry experts have also questioned the SEC’s priorities in this case.
John Reed Stark, a former official in the SEC’s Internet Enforcement division, described the investigation as a potential waste of resources. He suggested that Musk’s lawyers could argue that his initial intentions were to secure a board seat rather than pursue a complete acquisition of Twitter.
Stark added
“This case seems almost as absurd as the SEC 2008 case against Mark Cuban, and a transparent attempt by Chair Gensler to garner some last minute headlines days before his exit and to also stick it to President Trump.”
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