SEC picks another fight with Elon Musk as Gary Gensler exits

The Securities and Exchange Commission has waged another legal battle against Tesla (TSLA) The CEO and owner of X Elon Musk, this time accusing the billionaire of defrauding the shareholders of Twitter.

In a lawsuit filed Tuesday in a federal district court in Washington, DC, the SEC accused Musk of violating commission rules designed to protect shareholders during his 2022 takeover bid for the social media company.

“Musk failed to timely file with the SEC a beneficial ownership report disclosing his acquisition of more than 5% of the outstanding shares of Twitter common stock in March 2022, in violation of federal securities laws” , the SEC said in its complaint.

The commission said that Musk’s premature presentation kept Twitter shares at artificially low prices, during which he bought additional shares. The late filing allowed Musk to buy the shares for at least $150 million less than they are worth, the SEC said.

Under SEC rules, investors who acquire more than 5% of a company’s registered voting equity shares must disclose the position to the commission within 10 days. The rule is intended to ensure that other stakeholders have the opportunity to evaluate their positions and buy or sell shares as they see fit.

Musk began to acquire shares of Twitter in January 2022. From March 14 of that year, his participation had exceeded 5% of the ownership in the company. Musk missed the first SEC filing deadline on March 24 and in a late filing on April 4 designated himself as a passive investor.

“That day, Twitter’s stock price increased more than 27% over the previous day’s closing price,” the SEC said.

The commission said Musk not only disclosed his Twitter position too late, but also falsely presented himself as a passive investor, rather than an active investor who intends to exercise control over the company. Withholding those made by shareholders, the SEC alleged that Musk committed securities fraud.

Musk returned his disclosure as an active investor the next day on April 5.

The lawsuit comes in the final days of the commission’s leadership under SEC Chairman Gary Gensler, who, like his predecessor Jay Clayton, investigated Musk’s financial dealings.

Clayton targeted Musk in a 2018 Twitter post saying he had “secured financing” to take Tesla private. The statement led to an SEC process against Musk who finished in a establishment.

Gensler launched the investigation of the SEC in the acquisition of Musk’s Twitter acquisition and disclosure in April 2022. Whether Musk needs to defend the lawsuit will depend on the will of the SEC under the new leadership. Gary Gensler’s term as SEC chairman expires on January 20. And President-elect Trump appointed former SEC Commissioner Paul Atkins to lead the agency.

The Story Continues

The same month, the SEC began its investigation, a Twitter the shareholder sued Musk on the same disclosure, claiming that his filings with the SEC came six trading days too late, during which Musk improperly acquired 15 million of 56 million Twitter shares traded during the six-day period.

When Musk publicly announced his position, the shareholder said, Musk had acquired a 9.2% stake that allowed him to save $143 million on his purchase of Twitter shares.

“At the very least, he made a profit of $150 million against the backs of the common shareholders,” Jacob Walker, a lawyer for the shareholder, told Yahoo Finance in April 2022.

The shareholder lawsuit is pending in federal district court in the Southern District of New York.

In a court document that Musk filed in this case, he described his delinquent SEC filings as a “error”, an important distinction for his defense, which will depend on whether a jury accepts or not that he did not intend to defraud Twitter shareholders.

Musk, meanwhile, fired back at the SEC over X, calling the commission a “totally broken organization.”

Musk’s lawyer, Alex Spiro, sent a letter to SEC Chairman Gary Gensler in December rejecting what he said was an offer from the commission to settle his Twitter disclosure complaints. . Several media outlets reported that Spiro called the SEC’s lawsuit a “bogus” and said his client had done nothing wrong.

The SEC in its complaint asked the court to order Musk to pay back his “unjust enrichment” due to his alleged violation, as well as civil penalties.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on X @alexiskweed.

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