SEC sues Elon Musk for allegedly screwing investors out of $150M before Twitter takeover

America's financial watchdog has sued Elon Musk, alleging the billionaire failed to disclose his acquisition of Twitter shares in a timely manner and was therefore able to acquire the social network for $150 million less than would otherwise have been the case.

The SEC's beef is that its rules require parties that acquire five percent or more of a listed entity to report that fact within ten days of doing so. The rule is designed to ensure investors are informed about big buys that could indicate upcoming market-moving events, such as a takeover bid.

The regulator's lawsuit claims Musk’s holdings in Twitter crossed the five percent threshold on March 14, 2022, but that he did not disclose the fact until April 4 – eleven days beyond the March 24 disclosure deadline.

After Musk’s April 4 disclosure, the value of Twitter stock jumped 27 percent.

The complaint also alleges that between March 24 and April 4, Musk bought another $500 million of Twitter stock.

Investors who sold Twitter common stock during this period did so at artificially low prices

The SEC argues that if Musk had disclosed his holding on March 24, Twitter’s share price would likely have increased – making the purchases made between that date and April 4 more expensive.

“In total, Musk underpaid Twitter investors by more than $150 million for his purchases of Twitter common stock during this period,” the complaint states. “Investors who sold Twitter common stock during this period did so at artificially low prices and thus suffered substantial economic harm.”

The lawsuit backs up that argument with assertions that Musk knew his interest in Twitter would see its share price increase, as did his wealth manager, and was advised of his disclosure responsibilities by a broker engaged to acquire shares for the billionaire.

The complaint further alleges that on March 27, 2022, “Musk privately informed a member of Twitter’s Board of Directors that he owned at least seven percent of Twitter’s outstanding common stock." The two conversed, and Musk asked if the director had considered taking Twitter private. The director said: “Yes.”

The next day, Musk bought more Twitter shares.

• Apr 2022: Elon Musk's latest launch: An unsolicited Twitter takeover
• Jul 2022: Twitter sues Musk: He can't just 'change his mind, trash the company, walk away'
• Oct 2022: Elon Musk jettisons Twitter leadership, says takeover was 'to try to help humanity'
• Jul 2024: Twitter grew an incredible '1.6%' since Musk's $44B takeover. Amazing. Wow

The complaint describes other interactions between Musk and Twitter directors during which he was invited to join the company’s board, and the Tesla tycoon mentioned his desire to buy the social network outright. After those interactions, and before his April 4 disclosure, Musk allegedly bought more Twitter stock.

All that alleged pre-disclosure buying, the complaint argues, means Musk should cough up a penalty payment for missing deadlines, and “pay disgorgement of his unjust enrichment.”

The SEC wants a jury to hear the matter, which it filed in the US District Court for the District of Columbia.

As we all know, the world's richest man ultimately ended up buying Twitter, now known as X, in late April 2022 for $44 billion with help from investor pals.

Musk’s lawyer Alex Spiro issued a statement in which he wrote: “Today’s action is an admission by the SEC that they cannot bring an actual case, because Mr Musk has done nothing wrong and everyone sees this sham for what it is," and once again accused the regulator of running a “multiyear campaign of harassment."

Spiro described the case as “a single-count ticky-tack complaint.”

Meanwhile, somewhere in the far reaches of the Indian Ocean

The lawsuit is not Musk’s only new item for consideration: Australian airline Qantas has asked his other biz SpaceX to provide it with more timely information about when its rockets re-enter Earth’s atmosphere over the Indian Ocean.

Among other places, Qantas flies between Johannesburg and Sydney, and has had to delay some flights between the two cities after receiving late updates from US authorities about the arrival of SpaceX rockets.

The airline has in recent years come in for plenty of criticism for its performance, and the one-to-six-hour delays it’s had to make aren’t welcomed by passengers.

“We’re in contact with SpaceX to see if they can refine the areas and time windows for the rocket re-entries to minimise future disruption to our passengers on the route,” a Qantas spokesperson told The Register. ®