U.S. securities authorities filed an enforcement lawsuit against Elon Musk in federal court in Washington on Tuesday, citing his $44 billion acquisition of Twitter, now known as X.
One of the Securities and Exchange Commission’s most controversial last actions under outgoing head Gary Gensler is probably the case against Mr. Musk, who has grown to be a close advisor to President-elect Donald J. Trump. Additionally, it can be undermined in a matter of days when Mr. Trump names new officials to run the agency.
The SEC claims that by purchasing Twitter in 2022, Mr. Musk violated securities rules by accumulating a sizable equity holding in the social media platform without providing the required disclosure. According to the lawsuit, he delayed eleven days before notifying the SEC of the necessary disclosure.
The purpose of the regulatory filings is to allow market participants to track the actions of major investors and any takeover offers.
The S.E.C. claimed in its case that Mr. Musk was able to keep purchasing Twitter stock at an artificially low price because he failed to declare his holdings. The lawsuit went on to say that the action “allowed him to underpay by at least $150 million” for the extra shares prior to his late disclosure of his ownership.
In posts on X during the last two weeks, Mr. Musk had made fun of the S.E.C. by threatening to sue it. He revealed a letter issued to the agency in December by his attorney, Alex Spiro, in which he rejected a settlement offer in the matter.
Mr. Spiro criticized the regulator’s most recent submission on Tuesday.
“Today’s action is an admission by the S.E.C. that they cannot bring an actual case, because Mr. Musk has done nothing wrong and everyone sees this sham for what it is,” Mr. Spiro said in a statement. The agency had waged a “multiyear campaign of harassment” against Mr. Musk but filed “a single-count ticky-tack complaint,” Mr. Spiro added.
This is the third time that the SEC has taken Mr. Musk to court. In the first complaint, which was filed during Mr. Trump’s first term in office, Mr. Musk contemplated going private with his electric vehicle firm, Tesla, in an irresponsible social media post that moved the market.
The S.E.C. had also attempted to compel Mr. Musk to cooperate with a subpoena requesting his deposition before to bringing the case on Tuesday.
It’s unclear if the lawsuit will be pursued by the new authorities since Mr. Gensler resigned with Mr. Trump’s inauguration on Monday. The president-elect has stated that he plans to replace Mr. Gensler with Paul Atkins, a pro-business conservative and former S.E.C. commissioner.
According to criminal law expert Daniel Richman, a professor at Columbia Law School, the action seems to be part of a trend of cases brought by Biden administration officials “on their way out.”
He stated that the decision to “back off and withdraw” lawsuits like as the one against Mr. Musk will rest with the next government and Mr. Trump’s nominees.
In the last days of the Biden administration, the S.E.C. and the Consumer Financial Protection Bureau have launched a slew of cases. The future of these last-minute measures under the incoming administration is uncertain, just like the case against Mr. Musk.
Dennis Kelleher, the CEO of Better Markets, a nonprofit organization that advocates for greater openness on Wall Street, suggested that Mr. Musk’s opposition to the S.E.C.’s attempt to obtain a deposition may have influenced the lawsuit’s timing. Most instances like this, according to Mr. Kelleher, would be resolved with the offender paying a fine and without acknowledging or denying any wrongdoing.
The S.E.C., he said, is sending a message that “billionaires who engage in litigation warfare are going to comply with the law like every other American.”
The S.E.C. did not, however, make a special effort to publicize the litigation.
Without the typical hoopla that comes with a major lawsuit, regulators filed it on Tuesday after East Coast business closed. A rare occurrence for an action against a well-known businessman is that neither Mr. Gensler nor any other senior official with the agency was quoted in the news release announcing the filing.
Less than a week before Inauguration Day, it was a sign that authorities could be concerned about the appearance of targeting the world’s richest individual, who also serves as a close advisor to the president-elect.
Since the election, Mr. Musk has been with Mr. Trump virtually every day. He attends meetings and events with the president-elect while residing almost full-time at Mr. Trump’s Mar-a-Lago home and club in Florida.
Additionally, Mr. Musk was named co-chair of a government task committee by Mr. Trump to find ways to reduce the federal budget.
Beginning soon after he declared in April 2022 that he had acquired a majority ownership in Twitter, the S.E.C. has been investigating Mr. Musk for years.
It was in late January 2022 that Mr. Musk began purchasing Twitter stock. The regulator’s complaint claims that in February, the broker overseeing his share purchases cautioned the billionaire’s financial manager to get legal counsel on revealing his stance. Mr. Musk exceeded the 5 percent ownership threshold, which necessitates a public declaration, in mid-March.
According to the S.E.C.’s lawsuit, he kept purchasing Twitter shares and didn’t reveal his ownership until April 4. Twitter’s shares jumped more than 27% after he made his announcement.
Mr. Musk swiftly changed his mind and offered to purchase Twitter altogether for $44 billion, despite having previously said in an SEC report that he intended to be a passive stakeholder in the company. He attempted to pull out of the arrangement in July 2022, but the business sued to keep it going. After completing his acquisition in October of that year, Mr. Musk renamed the business X.
In order to force Mr. Musk to testify in the lawsuit, the S.E.C. has fought him. The government filed a lawsuit against him in October 2023 to compel him to testify on his share purchases. A year later, Mr. Musk came to testify. In order to reimburse the S.E.C. for the travel expenses it incurred in sending its workers to testify, the billionaire also consented to pay about $3,000.
However, the SEC’s attempt to penalize Mr. Musk was rejected by a federal judge in San Francisco in November. The next day, Mr. Musk made a crass joke to mock the agency in a post on X.
Numerous lawsuits and investigations by federal authorities have focused on Mr. Musk’s purchase of Twitter. Following the resignation of many top executives in charge of security and privacy and the layoff of a large portion of its workforce, the Federal Trade Commission looked into whether X had the capacity to secure users’ privacy.
That organization has also attempted to remove Mr. Musk from office. In a lawsuit pertaining to his delayed disclosure of his ownership position in the firm, former Twitter shareholders have also accused Mr. Musk of fraud.
Also read: Viksit Workforce for a Viksit Bharat
Do Follow: The Mainstream formerly known as CIO News LinkedIn Account | The Mainstream formerly known as CIO News Facebook | The Mainstream formerly known as CIO News Youtube | The Mainstream formerly known as CIO News Twitter
About us:
The Mainstream formerly known as CIO News is the premier platform dedicated to delivering the latest news, updates, and insights from the CIO industry. As a trusted source in the technology and IT sector, we provide a comprehensive resource for executives and professionals seeking to stay informed and ahead of the curve. With a focus on cutting-edge developments and trends, The Mainstream formerly known as CIO News serves as your go-to destination for staying abreast of the rapidly evolving landscape of technology and IT. Founded in June 2020, The Mainstream formerly known as CIO News has rapidly evolved with ambitious growth plans to expand globally, targeting markets in the Middle East & Africa, ASEAN, USA, and the UK
