In a recent legal development, the United States Securities and Exchange Commission (SEC) has filed a lawsuit against Elon Musk, alleging that he misled Twitter investors, costing them approximately $150 million. The lawsuit was filed as the Biden administration draws to a close, making it uncertain whether the next administration will vigorously pursue the charges against Musk. Notably, President-elect Donald Trump has selected Musk to spearhead the Department of Government Efficiency, a new government body focused on reducing regulations and restructuring federal agencies, a position that could potentially influence the trajectory of the lawsuit if pursued under the new administration. Details of Musk’s appointment were reported earlier.
The lawsuit centers on allegations that Musk failed to disclose his accumulation of Twitter shares promptly, a violation of SEC rules that resulted in significant financial advantages for him at the expense of other investors. The pending transition in SEC leadership might impact the aggressiveness with which the case is pursued. Current SEC Chair Gary Gensler is set to leave his post, and Trump has nominated Paul Atkins, who previously advocated for reduced disclosure requirements before Congress, as the new chair. The Wall Street Journal reported that changes in the SEC’s leadership could influence the lawsuit’s outcome.
The strict-liability nature of the disclosure rule Musk is accused of violating implies that the SEC does not need to prove his intent to mislead investors, only that he failed to adhere to the rule. This aspect complicates any attempt to dismiss the case merely due to a change in administrative priorities. The SEC’s investigation reportedly extends beyond the late disclosure, encompassing all Musk’s Twitter-related stock acquisitions in 2022 and related statements and filings. Thousands of documents have been obtained during the probe.
Musk’s legal representatives previously claimed that the SEC threatened to file multiple charges unless a settlement was reached, yet the lawsuit filed includes only the late-disclosure charge. The SEC is seeking a jury trial to impose a civil penalty and require Musk to surrender any misbegotten gains, along with interest. For more details, the full complaint can be accessed here.