Key Takeaways:
- Elon Musk faces an SEC lawsuit over delayed disclosure of Twitter share ownership.
- The delay allowed Musk to purchase shares at lower prices, avoiding $150M in costs.
- Investors reportedly suffered significant losses due to artificially low stock prices.
The U.S. Securities and Exchange Commission charged billionaire Elon Musk with failing to properly disclose his stake in Twitter. According to the complaint, Musk began buying Twitter shares early this year and crossed the 5% ownership threshold on March 14.
But he didn’t file the necessary Schedule 13D with the SEC, as federal securities laws require, until April 4. In that time, according to reports, Musk was able to buy more shares at an artificially low price-an 11-day delay that allegedly saved him at least $150 million.
The SEC noted that such actions hurt investors who sold their shares during this period, since the stock price remained suppressed due to the undisclosed ownership. On the day Musk’s holdings were finally revealed, Twitter’s stock surged by more than 27%, reflecting the market-moving impact of the delayed disclosure.
Investors Suffer Losses
The lawsuit details Musk’s strategic acquisitions, with his wealth manager advising brokers to avoid actions that could inflate Twitter’s stock price. By the time Musk disclosed his 9.2% stake on April 4, 2022, he had already spent over $500 million acquiring shares at undervalued prices.
The SEC is asserting that the nature of his failure to filing disclosure within ten days of event occurrence required the Section 13(d) has deprived the market an opportunity to know all available relevant information in the process, and, to that extent.
The complaint also alleges that Musk deliberately withheld the filing to reap an unfair-advantage benefit. Investors who sold their shares during this period did so without knowledge of Musk’s growing interest in Twitter and thus suffered great economic harm.
Broader Implications for Musk and Twitter
The current lawsuit is in addition to several others that have mired Musk in controversy since his acquisition of Twitter, which he renamed X Corp. A case filed by the SEC against Musk shows that not even the high and mighty of financial markets always get away with questionable practices. It also speaks to questions of moral imperatives on major investors to help protect transparency and equity.
Musk, a long critic of these regulatory agencies, has so far declined to comment publicly on the suit. The SEC seeks to seek penalties and remedies against what it sees as violations; however, how much more damage may be done to Musk and his businesses is anyone’s guess.
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