Nandini Roy Choudhury, writer
Brief news
- The SEC has accused Elon Musk of securities fraud for failing to disclose his ownership stake in Twitter, which allowed him to buy shares at lower prices, allegedly costing investors over $150 million.
- Musk’s late disclosure of his ownership, exceeding 5%, was made 11 days after the deadline, leading to significant stock price increases once revealed.
- Musk’s attorney claims the SEC’s lawsuit is unfounded and part of a long-term harassment campaign, while Musk criticized the SEC’s focus on this case amidst other unpunished crimes.
Detailed news
The Securities and Exchange Commission (SEC) has filed a complaint against Elon Musk, saying that the billionaire committed securities fraud in 2022 by neglecting to declare that he had amassed an active ownership in Twitter. This secrecy allowed him to purchase shares at “artificially low prices,” according to the alleged allegations.
In late 2022, Musk, who is also the CEO of Tesla and SpaceX, announced that he had purchased Twitter for $44 billion. The following year, he changed the name of the company to X. Prior to the transaction, he had amassed a position in the company that was bigger than five percent, which would have necessitated the disclosure of his holdings to the general public within ten calendar days of reaching that threshold.
Musk was more than ten days late in reporting that material information, which gave him the opportunity to underpay by at least $150 million for shares that he purchased after his financial beneficial ownership report was due, as stated in the civil complaint that was filed by the Securities and Exchange Commission in the United States District Court in Washington, District of Columbia. It is possible that investors would have increased their bids for the shares if they had been aware of Musk’s purchases and interest in the company.
About the Twitter disclosures in 2022, the Securities and Exchange Commission (SEC) was conducting an investigation to see whether or not Musk or anybody else working with him committed securities fraud. In a post that he made on X for the previous month, Musk stated that the Securities and Exchange Commission (SEC) had filed a “settlement demand,” which put pressure on him to agree to a deal that included a fine within forty-eight hours or “face charges on numerous counts” involving the purchase of shares.
According to a statement that was sent out via email on Tuesday, Alex Spiro, who represents Musk, stated that the step taken by the SEC is an admission that “they cannot bring an actual case.” Spiro, a partner at Quinn Emanuel, stated further that Musk “has done nothing wrong” and referred to the lawsuit as a “sham.” He further stated that the lawsuit was the result of a “multi-year campaign of harassment,” which culminated in a “single-count ticky tak complaint.”
For reasons “beyond the litigation release and the complaint, which is, literally, an actual case brought by the SEC,” a representative for the Securities and Exchange Commission (SEC) declined to comment.
Musk referred to the Securities and Exchange Commission (SEC) as a “totally broken organization” in a post that he made on X after the complaint was filed. He stated that the SEC is concentrating “on s— like this when there are so many actual crimes that go unpunished.”
As President-elect Donald Trump prepares to begin his second term in office on January 20, Musk is only one week away from having an impact in the White House that is unmatched by anybody else. Musk, who was a significant financial booster of Trump in the final stages of the campaign, is poised to lead an advisory group that will focus in part on cutting regulations, including those that affect Musk’s numerous firms. Musk’s plans to chair this group are expected to be announced soon.
In July, President Trump made a commitment to remove Gary Gensler from his position as chairman of the Securities and Exchange Commission (SEC), whose tenure began in 2021 under the administration of President Joe Biden. Gensler made the announcement that he would be leaving from his position instead of continuing to serve after Trump’s election victory. Trump intends to put forth Paul Atkins for the position of chair of the Securities and Exchange Commission (SEC).
In 2022, the Oklahoma Firefighters Pension and Retirement System filed a second civil case against Musk in connection with the Twitter sale. The claim accused Musk of intentionally concealing his progressive investments in the social network as well as his intention to purchase the firm. It was alleged by the attorneys for the pension fund that Musk had impacted the decisions of other shareholders and put them at a disadvantage by neglecting to disclose his interests in a clear and transparent manner.
The case, which was referred to as Rasella v. Musk, was submitted to a federal court in the Southern District of New York in the month of April 2022.
Innocent members of the public
According to the lawsuit filed by the Securities and Exchange Commission (SEC) on Tuesday, Musk’s ownership of Twitter reached the 5% threshold in March 2022, at which point he would have been compelled to report his shares until the 24th of March.
“Eleven days after a report was due, on April 4, 2022, Musk finally disclosed his beneficial ownership in a report with the SEC, disclosing that he had acquired over nine percent of Twitter’s outstanding stock,” the lawsuit states. “This was the first time that Musk had disclosed his ownership in a public setting.” The stock price of Twitter climbed by more than 27 percent on that particular day compared to the closing price of the previous day.
For the period of time between the necessary disclosure and the day of his actual filing, the Securities and Exchange Commission (SEC) asserts that Musk spent more than $500 million on the purchase of more Twitter shares. It is said in the complaint that this made it possible for him to purchase stock from the “unsuspecting public at artificially low prices.” According to the Securities and Exchange Commission, he “underpaid” Twitter shareholders by more than $150 million over that time period.
The Securities and Exchange Commission (SEC) has stated in its lawsuit that it is seeking a jury trial and has requested that Musk be compelled to “pay disgorgement of his unjust enrichment” in addition to a civil penalty.
The lawsuit is the most recent development in a story that has been going on for almost three years.
Musk’s ownership of Twitter was made public in April 2022, and it was known that he was the largest shareholder at the time. Musk was scheduled to join Twitter’s board of directors for a brief period of time during that month. Nevertheless, he swiftly changed his mind about that plan and informed the board that he would not be taking a seat.
The drama that ensued lasted for a period of six months, beginning with Musk’s submission of an unsolicited proposal in the middle of April, which was met with opposition from the board. Later that month, the board of directors of Twitter ultimately decided to accept Musk’s offer. Shortly after that, Musk made an attempt to retract his statement, claiming that Twitter was exaggerating the amount of “bots” that were using its service.
In the end, Musk was successful in wrapping up the transaction in October of 2022, when he famously entered Twitter’s office in San Francisco while holding a sink in his hands.
As we enter the headquarters of Twitter, let that sink in! This is what Musk wrote, and he attached a video of his entrance.
In the past, Musk has been involved with the Securities and Exchange Commission (SEC).
Musk was charged with making “false and misleading” statements to investors in September 2018, when he declared via Twitter that he was considering taking Tesla private at $420 per share and had finance secured. The agency alleges that Musk made these claims in order to deceive investors.
The price of Tesla shares fluctuated for several weeks following that, and the transaction never went through. In the end, Musk and Tesla reached an agreement on a settlement, but revisions were made to it in 2019. In accordance with those agreements, Musk and Tesla were had to pay fines totaling twenty million dollars each, and Musk was also required to temporarily step down from his position as chairman of the Tesla board.
In its most recent lawsuit, the Securities and Exchange Commission did not make any reference to Musk’s previous civil securities fraud charges or settlement agreement.
Source : CNBC news
