U.S. securities regulators sued Elon Musk in federal court in Washington on Tuesday in an enforcement action arising from his $44 billion purchase of Twitter, now called X.
The lawsuit against Mr. Musk, who has become a close adviser to President-elect Donald J. Trump, is likely to be one of the more contentious final acts of the Securities and Exchange Commission under Gary Gensler, its departing chair. It could also be undercut in just a few days, when Mr. Trump appoints new leadership to take charge of the regulator.
The S.E.C. contends that in buying Twitter in 2022, Mr. Musk violated securities laws by amassing a large stock position in the social media company without filing the proper notification. The complaint said he had waited 11 days before filing the required disclosure with the S.E.C.
The regulatory filings are required so investors in the marketplace can monitor the moves of large investors and potential takeover bids.
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Because Mr. Musk did not disclose his position, he was able to continue buying Twitter stock at an artificially low price, the S.E.C. said in its lawsuit. The move “allowed him to underpay by at least $150 million” for the additional shares before he belatedly disclosed his stake, the lawsuit continued.
Over the past few weeks, Mr. Musk had taunted the S.E.C. in posts on X about the potential for filing a lawsuit. In December, he shared a letter that his lawyer, Alex Spiro, had sent to the agency, rejecting a settlement offer in the case.
On Tuesday, Mr. Spiro denounced the regulator’s latest filing.
“Today’s action is an admission by the S.E.C. that they cannot bring an actual case, because Mr. Musk has done nothing wrong and everyone sees this sham for what it is,” Mr. Spiro said in a statement. The agency had waged a “multiyear campaign of harassment” against Mr. Musk but filed “a single-count ticky-tack complaint,” Mr. Spiro added.
This is the third time the S.E.C. has gone to court with Mr. Musk. The first lawsuit, during Mr. Trump’s first term in office, arose from inappropriate market-moving posts on social media in which Mr. Musk mused about taking his electric car company, Tesla, private.
Before filing the lawsuit on Tuesday, the S.E.C. had also sought to force Mr. Musk to comply with a subpoena seeking to take his deposition.
With Mr. Gensler stepping down with the inauguration of Mr. Trump on Monday, it is unclear whether incoming regulators will pursue the litigation. The president-elect has said he intends to nominate Paul Atkins, a former S.E.C. commissioner and pro-business conservative, to succeed Mr. Gensler.
Daniel Richman, a professor at Columbia Law School who specializes in criminal law, said the lawsuit appeared to be part of a pattern of matters being filed by Biden administration appointees “on their way out.”
It will be up to the new administration and Mr. Trump’s appointees to decide whether to “back off and withdraw” cases like the one against Mr. Musk, he said.
The S.E.C. and the Consumer Financial Protection Bureau have filed a flurry of lawsuits in the waning days of the Biden administration. As with the case against Mr. Musk, it is unclear how these last-minute actions will fare under the new administration.
Dennis Kelleher, chief executive of Better Markets, a nonprofit group that pushes for more transparency on Wall Street, said the timing of the lawsuit might have been dictated by Mr. Musk’s resistance to the S.E.C.’s effort to take a deposition. Mr. Kelleher said most cases like this would be settled with the defendant’s paying a fine and neither admitting nor denying liability.
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The S.E.C., he said, is sending a message that “billionaires who engage in litigation warfare are going to comply with the law like every other American.”
Still, the S.E.C. did not go out of its way to trumpet the lawsuit.
Regulators filed it on Tuesday after the close of business on the East Coast without the usual fanfare associated with a big case. The news release announcing the filing did not include a quote from Mr. Gensler or any other top official with the agency — a rarity for an action against a high-profile businessperson.
It was an indication that regulators might be worried about the optics of going after the richest person on the planet, who is also a close adviser to the president-elect, less than a week before Inauguration Day.
Mr. Musk has been by Mr. Trump’s side almost every day since the presidential election. He is living all but full time at Mr. Trump’s Mar-a-Lago residence and club in Florida, and attending meetings and events with the president-elect.
Mr. Trump also appointed Mr. Musk as co-chair of a governmental task force that aims to come up with ways to cut the federal budget.
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The S.E.C. has pursued its current investigation of Mr. Musk for years, beginning shortly after he announced in April 2022 that he had amassed a controlling stake in Twitter.
Mr. Musk started buying up Twitter stock in late January 2022. In February, the broker managing his share purchases warned the billionaire’s financial manager that Mr. Musk should seek legal advice about disclosing his position, according to the regulator’s lawsuit. In mid-March, Mr. Musk passed the 5 percent ownership threshold, the point when a public disclosure is required.
He continued buying shares in Twitter and did not disclose his stake until April 4, the S.E.C. said in its complaint. After he announced his position, Twitter’s stock shot up more than 27 percent.
Although Mr. Musk initially said in an S.E.C. disclosure that he planned to be a passive shareholder in Twitter, he quickly pivoted and made an offer to buy it outright for $44 billion. In July 2022, he tried to back out of the purchase, but the company sued to force the deal through. Mr. Musk completed his purchase that October, and later changed the company’s name to X.
The S.E.C. has battled Mr. Musk to compel his testimony in the case. In October 2023, the agency sued him in an effort to force him to testify about his share purchases. Mr. Musk appeared for testimony a year later. The billionaire also agreed to pay almost $3,000 to compensate the S.E.C. for travel costs it incurred in sending its employees to take his testimony.
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But in November, a federal judge in San Francisco denied the S.E.C.’s request to impose sanctions on Mr. Musk. The next day, in a post on X, Mr. Musk taunted the agency with a crude joke.
Mr. Musk’s takeover of Twitter has been the subject of several lawsuits and investigations by the federal authorities. The Federal Trade Commission investigated whether X had the resources to protect users’ privacy after he laid off much of its staff and after several senior executives responsible for privacy and security resigned.
That agency has also sought to depose Mr. Musk. Former Twitter shareholders have also sued Mr. Musk, accusing him of fraud in a case related to his belated disclosure of his stake in the company.
The lawsuit against Mr. Musk, who has become a close adviser to President-elect Donald J. Trump, is likely to be one of the more contentious final acts of the Securities and Exchange Commission under Gary Gensler, its departing chair. It could also be undercut in just a few days, when Mr. Trump appoints new leadership to take charge of the regulator.
The S.E.C. contends that in buying Twitter in 2022, Mr. Musk violated securities laws by amassing a large stock position in the social media company without filing the proper notification. The complaint said he had waited 11 days before filing the required disclosure with the S.E.C.
The regulatory filings are required so investors in the marketplace can monitor the moves of large investors and potential takeover bids.
Advertisement
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Because Mr. Musk did not disclose his position, he was able to continue buying Twitter stock at an artificially low price, the S.E.C. said in its lawsuit. The move “allowed him to underpay by at least $150 million” for the additional shares before he belatedly disclosed his stake, the lawsuit continued.
Over the past few weeks, Mr. Musk had taunted the S.E.C. in posts on X about the potential for filing a lawsuit. In December, he shared a letter that his lawyer, Alex Spiro, had sent to the agency, rejecting a settlement offer in the case.
On Tuesday, Mr. Spiro denounced the regulator’s latest filing.
“Today’s action is an admission by the S.E.C. that they cannot bring an actual case, because Mr. Musk has done nothing wrong and everyone sees this sham for what it is,” Mr. Spiro said in a statement. The agency had waged a “multiyear campaign of harassment” against Mr. Musk but filed “a single-count ticky-tack complaint,” Mr. Spiro added.
This is the third time the S.E.C. has gone to court with Mr. Musk. The first lawsuit, during Mr. Trump’s first term in office, arose from inappropriate market-moving posts on social media in which Mr. Musk mused about taking his electric car company, Tesla, private.
Before filing the lawsuit on Tuesday, the S.E.C. had also sought to force Mr. Musk to comply with a subpoena seeking to take his deposition.
With Mr. Gensler stepping down with the inauguration of Mr. Trump on Monday, it is unclear whether incoming regulators will pursue the litigation. The president-elect has said he intends to nominate Paul Atkins, a former S.E.C. commissioner and pro-business conservative, to succeed Mr. Gensler.
Daniel Richman, a professor at Columbia Law School who specializes in criminal law, said the lawsuit appeared to be part of a pattern of matters being filed by Biden administration appointees “on their way out.”
It will be up to the new administration and Mr. Trump’s appointees to decide whether to “back off and withdraw” cases like the one against Mr. Musk, he said.
The S.E.C. and the Consumer Financial Protection Bureau have filed a flurry of lawsuits in the waning days of the Biden administration. As with the case against Mr. Musk, it is unclear how these last-minute actions will fare under the new administration.
Dennis Kelleher, chief executive of Better Markets, a nonprofit group that pushes for more transparency on Wall Street, said the timing of the lawsuit might have been dictated by Mr. Musk’s resistance to the S.E.C.’s effort to take a deposition. Mr. Kelleher said most cases like this would be settled with the defendant’s paying a fine and neither admitting nor denying liability.
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The S.E.C., he said, is sending a message that “billionaires who engage in litigation warfare are going to comply with the law like every other American.”
Still, the S.E.C. did not go out of its way to trumpet the lawsuit.
Regulators filed it on Tuesday after the close of business on the East Coast without the usual fanfare associated with a big case. The news release announcing the filing did not include a quote from Mr. Gensler or any other top official with the agency — a rarity for an action against a high-profile businessperson.
It was an indication that regulators might be worried about the optics of going after the richest person on the planet, who is also a close adviser to the president-elect, less than a week before Inauguration Day.
Mr. Musk has been by Mr. Trump’s side almost every day since the presidential election. He is living all but full time at Mr. Trump’s Mar-a-Lago residence and club in Florida, and attending meetings and events with the president-elect.
Mr. Trump also appointed Mr. Musk as co-chair of a governmental task force that aims to come up with ways to cut the federal budget.
Advertisement
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The S.E.C. has pursued its current investigation of Mr. Musk for years, beginning shortly after he announced in April 2022 that he had amassed a controlling stake in Twitter.
Mr. Musk started buying up Twitter stock in late January 2022. In February, the broker managing his share purchases warned the billionaire’s financial manager that Mr. Musk should seek legal advice about disclosing his position, according to the regulator’s lawsuit. In mid-March, Mr. Musk passed the 5 percent ownership threshold, the point when a public disclosure is required.
He continued buying shares in Twitter and did not disclose his stake until April 4, the S.E.C. said in its complaint. After he announced his position, Twitter’s stock shot up more than 27 percent.
Although Mr. Musk initially said in an S.E.C. disclosure that he planned to be a passive shareholder in Twitter, he quickly pivoted and made an offer to buy it outright for $44 billion. In July 2022, he tried to back out of the purchase, but the company sued to force the deal through. Mr. Musk completed his purchase that October, and later changed the company’s name to X.
The S.E.C. has battled Mr. Musk to compel his testimony in the case. In October 2023, the agency sued him in an effort to force him to testify about his share purchases. Mr. Musk appeared for testimony a year later. The billionaire also agreed to pay almost $3,000 to compensate the S.E.C. for travel costs it incurred in sending its employees to take his testimony.
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But in November, a federal judge in San Francisco denied the S.E.C.’s request to impose sanctions on Mr. Musk. The next day, in a post on X, Mr. Musk taunted the agency with a crude joke.
Mr. Musk’s takeover of Twitter has been the subject of several lawsuits and investigations by the federal authorities. The Federal Trade Commission investigated whether X had the resources to protect users’ privacy after he laid off much of its staff and after several senior executives responsible for privacy and security resigned.
That agency has also sought to depose Mr. Musk. Former Twitter shareholders have also sued Mr. Musk, accusing him of fraud in a case related to his belated disclosure of his stake in the company.
