The Securities and Exchange Commission filed an action againstElon Muskdating back tohis 2022 acquisition of Twitter, now X. alleging that he was enriched to the tune of $150 million by not reporting a stake he had amassed in the social media platform within a required five day window and, instead, buying more stock.
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SECrules give investors a five-day window to report a 5% or more ownership position in a public company but Musk took longer, in violation of the beneficial ownership reporting requirements under the Securities Exchange Act.
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Congress enacted the beneficial ownership reporting requirements to, among other things, help investors make informed investment decisions by providing information about accumulations of certain classes of equity securities by persons who have the potential to change or influence control of the issuer companies, the SEC said.
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According to the complaint, after Musk failed to timely file a beneficial ownership report by the required date of March 24, 2022, he purchased more than $500 million worth of Twitter common stock between March 25-April 1 2022.
As alleged, because Musk failed to timely file a beneficial ownership report with the SEC, he was able to make these purchases of Twitter common stock at artificially low prices from the unsuspecting public, who had not yet priced in the undisclosed material information of Musks beneficial ownership of more than five percent of Twitter common stock and investment purpose.
According to the SECs complaint, Musk underpaid by at least $150 million for his purchases of Twitter common stock in this period.
The complaint further alleges that, due to Musks failure to timely file a beneficial ownership report with the SEC, investors who sold Twitter common stock between March 25, 2022 and April 1, 2022 did so at artificially low prices, thereby suffering substantial economic harm.
The SECs complaint, filed in the U.S. District Court for the District of Columbia, seeks permanent injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties.
