SEC sues tech billionaire Musk for failing to disclose 5% Twitter stake acquisition

The US markets watchdog alleges that Elon Musk failed to timely inform the public about the concentration of Twitter shares in early 2022, and that may have cost other shareholders $150 million.

The Securities and Exchange Commission (SEC) has filed a lawsuit against Musk in the US District Court for the District of Columbia.

According to the complaint, Musk started acquiring Twitter’s (now X’s) common stock in early 2022 and crossed the five percent stake threshold by March 14th, 2022.

The billionaire had ten days to inform the investing public by filing a beneficial

ownership report with the SEC. But, allegedly, he failed to do so.

While the investing public was unsuspecting, Musk, allegedly, was able to make further purchases of Twitter common stock at artificially low prices. Investors could not price in the undisclosed material information of Musk’s five-percent beneficial ownership.

“Musk saved at least $150 million at the expense of Twitter shareholders by failing to timely file the beneficial ownership report,” the SEC said in the statement.

Congress enacted the ownership reporting requirements to help investors make informed investment decisions. Public disclosures inform investors about large ownership stakes in companies by people who potentially change or influence control of those companies.

The SEC found that Musk purchased more than $500 million worth of Twitter common stock between March 25th, 2022, and April 1st, 2022, when the public was unaware of his holdings. The complaint alleges that investors during that period sold Twitter shares at artificially low prices and suffered substantial economic harm.

According to the complaint, Musk and his wealth manager understood that once his stake was disclosed to the public, Twitter’s stock price and cost of purchases might substantially increase.

Musk filed the beneficial ownership report on April 4th, 2022, eleven days late. At the time he owned more than nine percent of Twitter’s stock.

“The complaint seeks permanent injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties,” the SEC said.