SEC Lawsuit Against Elon Musk: Unpacking the Legal Battle

The Securities and Exchange Commission took a parting shot at Elon Musk on Tuesday, filing a lawsuit over the billionaire’s alleged failure to properly disclose his purchases of Twitter stock in 2022.

For 11 days, Musk — the world’s richest man and a prominent backer of President-elect Donald Trump — allegedly failed to properly disclose that he had acquired a major stake in Twitter, the SEC said in a court filing in Washington. As a result, the agency said Musk benefited from “artificially low prices” as he snatched up shares in the company, which he eventually purchased for $44 billion and renamed X.

Legal Battle Unfolds

“In total, Musk underpaid Twitter investors by more than $150 million for his purchases of Twitter common stock during this period,” the SEC said in its complaint. “Investors who sold Twitter common stock during this period did so at artificially low prices and thus suffered substantial economic harm.”

The lawsuit lands just days before SEC Chair Gary Gensler — a progressive icon who has ratcheted up enforcement during his time atop the Wall Street regulator — is due to depart the agency as President Joe Biden’s administration draws to a close. It marks the latest salvo in a years-old feud between the SEC and Musk, who has become one of the regulator’s highest-profile critics. Late last year, he called the SEC “just another weaponized institution doing political dirty work.”

Alex Spiro, an attorney for Musk, fired back at the agency. In an email, Spiro said the SEC’s case is a “single-count ticky tak complaint” that “even if proven, carries a nominal penalty.”

“Today’s action is an admission by the SEC that [they] cannot bring an actual case – because Mr. Musk has done nothing wrong and Everyone sees this sham for what it is,” Spiro said.

The SEC declined to comment beyond its public filings.

Musk’s fight against the agency traces back to the first Trump administration, when the SEC sued him over allegedly misleading tweets about taking Tesla private. After settling with the agency, Musk went on “60 Minutes” to declare that he does “not respect the SEC.”

He has since thrown his weight behind several legal challenges attacking the SEC, including its use of in-house courts and the so-called Gag Rule.

What’s more, Musk now has significant political clout as the co-head of the so-called Department of Government Efficiency — a role that entails reviewing federal agencies like the SEC for potential budget cuts.

His purchases of Twitter shares have been under SEC scrutiny for years. Usually, SEC investigations are kept under wraps until the agency brings charges — if it does at all. But the probe into the disclosures became public after Musk failed to appear for scheduled testimony with the agency.

The SEC sought sanctions in the case after Musk skipped out on another planned testimony to attend a SpaceX launch in September, but the agency was rebuffed. Late last year, the SEC offered Musk a settlement to resolve the dispute. But Musk rejected the offer, posting on X a copy of a letter that Spiro sent Gensler claiming that the agency was engaged in “an improperly motivated campaign” against Musk, his associates and companies.

Future Implications

How the SEC proceeds with the case will likely be a matter for the next administration and its expected SEC chair, Paul Atkins. A former SEC commissioner, Atkins has regularly spoken out against heavy fines.

But Marc Fagel, a former SEC attorney who led the agency’s San Francisco regional office, said tossing the case outright would be an almost unprecedented action that could raise questions about the SEC’s independence.

“We’re in unchartered territory if the SEC becomes that politically driven,” Fagel said. “SEC enforcement should not be a creature of politics. Political influence or consideration should not be a factor.”