The U.S. Securities and Exchange Commission (SEC) has sued billionaire investor Elon Musk for an alleged securities violation related to his Twitter takeover. Musk bought Twitter (now X) in October 2022 for an eye-popping $44 billion. The Tesla (TSLA) CEO accumulated a 9% stake in the then-listed social media company before making an outright purchase.
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The SEC alleges that Musk acquired the 9% stake at substantially low share prices between March 25, 2022, and April 1, 2022, by delaying the disclosure of his initial 5% stake, as required by the law. According to the SEC’s calculation, Musk underpaid for the Twitter acquisition by at least $150 million owing to the delayed disclosure of his initial stake. The lawsuit urges the court to order Musk to “pay disgorgement of his unjust enrichment” as well as a civil penalty while also requesting a jury trial.
A Walk Down Memory Lane of Musk’s Twitter Takeover
Musk first bought a 5% stake in Twitter in March 2022 but disclosed the stake 11 days later. The SEC requires investors to immediately disclose large purchases of stocks in a company. In the meantime, Musk shopped for another 4% stake in the company, increasing his total stake to 9%. Interestingly, Musk disclosed his entire 9% stake in one go after 11 days of his first purchase.
The SEC argues that the late disclosure helped Musk to buy the additional 4% at “artificially low prices.” To prove the point, the SEC noted that when Musk disclosed his beneficial ownership (9% stake), Twitter’s share price jumped over 27%. In the same way, if Musk had disclosed his initial 5% stake in a timely manner, it would have led to Twitter’s share price appreciation, and Musk would have eventually paid more for the remaining 4% stake than he actually did.
Musk and Attorney’s Response to the Lawsuit
Musk and his attorney, Alex Spiro, replied to the SEC’s lawsuit with a vengeance, calling the lawsuit a “sham” and a concentrated, multi-year effort by the regulators to harass Musk. Spiro noted that Musk had done nothing wrong and that it was an alleged administrative failure to file a single form.
The SEC has been trying to implicate Musk in the Twitter shares purchase since the time of the acquisition. Spiro said that in December 2024, the SEC agreed to settle the case for $178 million plus $40 million in penalty and $45 million in interest. This amounted to a total of $263 million, which Spiro said was exorbitant because the SEC did not establish that Musk acted willfully to harm investors. Such a case would only account for a nominal penalty, he added.
Anyhow, this could possibly be the last SEC lawsuit by SEC Chair Gary Gensler, who is scheduled to vacate his office on January 20, as the new administration takes oath. Musk has a long history of disputes with the SEC and regulators in connection with his EV (electric vehicle) company Tesla and other businesses. Musk has donated over 250 million dollars to President-elect Donald Trump’s campaign and won a seat on the DOGE committee. With Trump in the White House, Musk surely hopes that the four years will be highly beneficial for all of his different businesses.
Is Investing in Tesla Stock a Good Idea?
Currently, analysts prefer to remain on the sidelines on Tesla stock owing to the subdued global EV demand and falling sales in China. On TipRanks, TSLA stock has a Hold consensus rating based on 13 Buys, 12 Holds, and nine Sell ratings. Also, the average Tesla stock price target of $323.56 implies 18.4% downside potential from current levels. Meanwhile, TSLA shares have zoomed over 80% in the past year.
