US Securities and Exchange Commission says Musk’s failure to disclose stake allowed him to underpay $150m for shares.
Elon Musk is facing a lawsuit from the securities regulator in the United States for allegedly not timely disclosing his stake in Twitter before purchasing the social media platform.
The US Securities and Exchange Commission (SEC) stated on Tuesday that Musk did not disclose within the required 10-day period that he had acquired more than 5 percent of Twitter’s stock in March 2022.
The SEC filed a document with the US District Court in the District of Columbia, claiming that Musk’s failure to inform regulators allowed him to continue buying shares at prices lower than their actual value.
This lack of disclosure ultimately enabled Musk to “underpay by at least $150 million for shares he purchased after the deadline for the beneficial ownership report,” according to the SEC.
Musk eventually disclosed that he had obtained over 9 percent of Twitter’s stock on April 4, 2022, which was 11 days after the required disclosure date, as reported by the SEC.
On that same day, Twitter’s stock price had increased by 27 percent compared to the previous day’s closing price, according to the regulator.
The SEC stated, “Due to Musk’s failure to timely disclose his beneficial ownership, he was able to make these purchases from unsuspecting investors at artificially low prices, which did not yet reflect the undisclosed significant information regarding Musk’s ownership of more than five percent of Twitter common stock and investment intention.”
“In total, Musk underpaid Twitter shareholders by more than $150 million for his acquisitions of Twitter common stock during this time frame. Shareholders who sold their Twitter common stock during this period did so at prices that were artificially low, resulting in significant financial losses.”
US securities regulations mandate that investors who acquire more than 5 percent of a company’s shares disclose their stake in order for shareholders to make well-informed investment decisions.
The SEC has previously sued Musk twice, one instance involving a 2018 Twitter post where he claimed to have secured funding to potentially take Tesla private, resulting in a $20 million civil fine and other penalties.
Musk successfully completed the purchase of Twitter for $44 billion in October 2022, following an acquisition agreement that he tried to back out of later.
The SEC’s recent enforcement action, announced just before Chair Gary Gensler’s resignation on January 20, raises questions about the future of the lawsuit against Musk, given his close ties to President-elect Donald Trump.
It remains uncertain if the legal action will continue under the new administration, as Trump has nominated Paul Atkins, a former SEC commissioner, to succeed Gensler.
