A new lawsuit filed by the U.S. Securities and Exchange Commission against Elon Musk, the billionaire CEO of Tesla (NASDAQ: TSLA) and owner of social media platform X, has brought renewed attention to federal reporting requirements for significant stock purchases.

In a complaint dated January 14, 2025, the SEC alleges that Musk failed to disclose his acquisition of more than five percent of Twitter’s common stock within the legally mandated timeframe, resulting in substantial financial gains for him and economic harm to other shareholders.

This lawsuit comes on the heels of an SEC rule change, announced on October 10, 2023, which shortens the timeline for investors to disclose five-percent stakes in public companies from ten calendar days to five business days. SEC Chair Gary Gensler, in a statement published by Reuters, said, “In our fast-paced markets, it shouldn’t take 10 days for the public to learn about an attempt to change or influence control of a public company.”

The rules, which had previously remained largely unchanged for decades, were updated to keep pace with modern market technology and trading strategies.

The revised regulations were initially proposed in 2022 and met with resistance from some activist investors, who argued that a shorter reporting window could reduce the profitability of quietly building a position in a target company before a takeover bid. However, the SEC cited the need for transparency and timely information, allowing other market participants to respond appropriately to large, potentially game-changing share acquisitions.

Key Allegations

According to the SEC’s newly released court filings, Musk exceeded the five-percent ownership threshold in Twitter on March 14, 2022, but did not file the required beneficial ownership report until April 4—eleven days past the statutory deadline under Section 13(d)(1) of the Securities Exchange Act of 1934.

Musk allegedly continued purchasing additional shares during this late disclosure period—at prices the SEC claims were “artificially low.” The complaint states, “Because Musk failed to timely disclose his beneficial ownership…he was able to make these purchases from the unsuspecting public at artificially low prices,” underpaying by more than an estimated $150 million compared with what he would have spent had the information been publicly known.

The SEC further argues that investors who sold Twitter shares in late March 2022, unaware of Musk’s rapidly growing stake, “suffered substantial economic harm.” Once Musk’s large position was disclosed on April 4, Twitter’s stock price rose sharply by over 27% in a single trading day.

The SEC contends that Musk’s violations undermine the spirit of the Williams Act—passed in 1968 to ensure transparency in corporate control transactions. These rules, codified in Section 13(d) of the Exchange Act, require investors who reach a five-percent ownership stake in a public company to file a Schedule 13D (or, in certain circumstances, a Schedule 13G) within ten days of crossing that threshold.

“Congress enacted the beneficial ownership reporting requirements to…help investors make informed investment decisions,” the SEC explains in its complaint.

Musk, who has publicly sparred with the SEC for several years, most notably over his 2018 tweets about taking Tesla private, has yet to file an official response to the new allegations. However, one of his attorneys, Alex Spiro, told Reuters in 2023 that the regulator’s investigation into Musk’s Twitter stock acquisitions is “misguided,” and “enough is enough,” suggesting that Musk believes he has already cooperated adequately with SEC inquiries.

Meanwhile, the SEC is still seeking Musk’s testimony regarding his 2022 purchase of Twitter—now X—and whether any other late or incomplete disclosures occurred. Court documents show that Musk was subpoenaed to testify but declined to appear for scheduled depositions, prompting the SEC to request a court order compelling his compliance.

The SEC’s lawsuit, filed in the U.S. District Court for the District of Columbia, asks the court to impose civil penalties, disgorgement of what it characterizes as “ill-gotten gains,” and a permanent injunction to prevent any similar future violations.

Information for this story was found via Reuters and the sources and companies 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.