The Securities and Exchange Commission (SEC) is likely to seek enforcement action that could bar Elon Musk from serving as an officer or director of a public company, according to former SEC officials. This move comes as the SEC investigates Musk’s alleged deliberate violation of securities laws regarding the timely disclosure of his Twitter stock purchases.
Musk disclosed his ownership of Twitter stock 11 days after the regulatory deadline, revealing his stake only after surpassing 9% ownership and receiving an offer to join the company’s board. This delay in disclosure is under scrutiny as it potentially allowed Musk to avoid a rise in Twitter’s share price while he was accumulating his stake.
In April 2022, Musk disclosed his significant stake in Twitter 11 days past the mandated 13-D filing deadline, which requires investors to report when they acquire more than 5% of a public company’s shares. This delay possibly saved him over $143 million by keeping Twitter’s share price lower while he continued to buy shares, as reported by The Wall Street Journal.
“The SEC has been thoroughly investigating this matter, and if they decide to file a formal complaint for fraud, they are expected to ask a court to bar Musk from serving as an officer or director of any public company,” said Marc Fagel, former head of the SEC’s San Francisco office. “They are building a stronger case this time around, given their disappointment with the outcomes of previous settlements with Musk.”
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In a related lawsuit brought by the Oklahoma Firefighters Pension and Retirement System, transcripts of testimony by Musk and his adviser Jared Birchall reveal a casual approach to compliance with SEC regulations. Despite assurances to banks that legal advice was sought, the lawsuit claims no such steps were taken to adhere to the disclosure rules.
This isn’t Musk’s first run-in with the SEC. In 2018, the SEC accused Musk of fraud following his tweet about securing funding to take Tesla private, a deal that never materialized. Musk settled the lawsuit by stepping down as Tesla’s chairman and paying a $20 million fine, narrowly avoiding a ban from serving as an officer or director of a public company.
Experts believe the SEC faces significant challenges if it proceeds with fraud charges. “Courts typically prefer fraud cases that involve clear false statements,” said Fagel. “Transforming a regulatory violation into fraud, especially one involving delayed disclosure, can be an uphill battle.”
James Park, a securities law expert at UCLA, added, “Regulators could potentially frame this as a case of market deception, which complicates matters compared to straightforward falsehoods. It’s a nuanced issue but significant enough to warrant serious consideration.”
Musk is required to appear before the SEC once more to address questions about his Twitter trades. This follows a federal judge’s ruling last month, which rejected Musk’s attempt to quash the subpoena.
The firefighters’ lawsuit seeks monetary damages, alleging that investors who sold Twitter shares during the period of Musk’s non-compliance were defrauded. While Musk’s attorneys have not responded to the revised complaint, they have previously dismissed the allegations.
Musk is the CEO and product architect of Tesla, a role in which he oversees the company’s electric vehicle manufacturing, energy products, and AI initiatives. He is also the CEO and lead designer of SpaceX, where he spearheads the company’s ambitions in space exploration, satellite deployment, and Mars colonization.
Additionally, Musk is the founder and CEO of Neuralink, a neurotechnology company focused on developing brain-machine interfaces, and The Boring Company, which aims to revolutionize urban transportation through underground tunnels.
His influence extends to his ownership and leadership of X Corp., formerly Twitter, which he acquired in late 2022.
The SEC’s decision on whether to pursue formal charges against Musk remains pending. Should they move forward, it could have profound implications for Musk’s role at his ventures.
Information for this briefing was found via The Wall Street Journal and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
