The Securities and Exchange Commission (SEC) filed a lawsuit against Elon Musk, Tesla's CEO, over alleged violations of federal securities laws. The complaint stems from Musk's delay in disclosing his substantial stake in Twitter (now X Corp.) in 2022, which the SEC claims allowed him to buy shares at artificially low prices.

Allegations of Delayed Disclosure

The SEC's lawsuit, filed on Tuesday in a Washington, D.C. federal court, accuses Musk of failing to disclose his purchase of over 5% of Twitter shares within the required 10-day period. By law, investors must report such a stake within 10 calendar days of surpassing the 5% threshold. Musk, however, waited 11 days beyond the March 2022 deadline, according to the SEC.

This delay allowed Musk to acquire Twitter shares worth over $500 million at a discounted price before his purchase became public. When he finally disclosed his 9.2% stake on April 4, 2022, Twitter's share price surged by more than 27%, benefiting Musk and his financial position.

Financial Impact and Investor Consequences

The SEC argues that Musk's late disclosure harmed other investors by preventing them from making informed decisions about Twitter’s stock. According to the SEC, had the public known about Musk’s interest in the company sooner, the stock price would likely have risen, causing investors to pay higher prices for their shares. As a result, the SEC claims that Musk underpaid by at least $150 million for the Twitter shares he purchased after the required filing deadline.

The lawsuit emphasizes that Musk’s delay not only violated securities law but also allowed him to benefit from purchasing Twitter shares at a lower price, negatively affecting other investors in the process.

Musk's Response and Criticism of the SEC

Elon Musk responded to the SEC's lawsuit on X, calling the organization a "totally broken" entity. He criticized the SEC for focusing on what he called a minor issue while other significant crimes remain unaddressed. Musk's criticism reflects his long-standing conflict with the regulatory body, especially over past investigations and settlements.

Musk’s legal team, led by Alex Spiro, argued that the lawsuit was a culmination of the SEC’s "multi-year campaign of harassment" against Musk. According to Spiro, the case is based on a "mere administrative failure to file a single form," which, if proven, carries a nominal penalty. He maintained that Musk had done nothing wrong and dismissed the lawsuit as a baseless attack.

Musk's Other Legal Battles Related to Twitter

This lawsuit is not the first legal challenge Musk has faced over his Twitter dealings. In addition to the SEC’s claims, Musk is also being sued by former Twitter shareholders and investors who claim that his delayed disclosures harmed their interests. In 2022, the Oklahoma Firefighters Pension and Retirement System filed a lawsuit, accusing Musk of hiding his intentions to acquire the company and thus influencing the market inappropriately.

In the case filed in the Southern District of New York, Musk's defense argued that the delay in disclosure was unintentional and that it was implausible to believe he intended to defraud other shareholders. Musk's legal team maintains that any mistakes made during the process were just that—mistakes—and not intentional violations of securities law.

Regulatory Tensions and Past Issues with the SEC

Musk’s feud with the SEC is not new. In 2018, the regulator sued him over misleading Twitter posts regarding Tesla’s privatization, which led to Musk paying a $20 million civil fine and stepping down as Tesla’s chairman for a period. The SEC had also sought sanctions against Musk for missing court-ordered testimony during a previous Twitter-related probe, which he skipped to attend the launch of SpaceX's Polaris Dawn mission.

In light of his ongoing conflicts with the SEC, Musk has repeatedly expressed his frustration with the regulator’s actions and what he perceives as its excessive scrutiny of his business dealings. 

In the latest lawsuit, if the court rules in favor of the SEC, Musk may face civil penalties, including fines and the possible disgorgement of improperly earned profits.