Elon Musk is under scrutiny with the U.S. Securities and Exchange Commission (SEC). Reportedly, the SEC filed a lawsuit against Musk on Tuesday, alleging the billionaire committed securities fraud in 2022 by failing to disclose he had amassed an active stake in Twitter, a secrecy that allowed him to buy shares at “artificially low prices.”
Musk, who is also CEO of Tesla and SpaceX, purchased Twitter for $44 billion in late 2022 and changed the name to X the following year. Prior to the acquisition, he’d reportedly built up a position in the company of greater than 5%, which would’ve required disclosing his holdings to the public within 10 calendar days of reaching that threshold.
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Musk’s acquisition of Twitter (now rebranded as X) in 2022 led to several legal and regulatory challenges, both before and after the purchase. Below are some key legal matters related to his Twitter purchase:
Pre-acquisition lawsuit (2022)
Before Musk finalized his purchase of Twitter in October 2022, there was a notable legal battle after he attempted to back out of the deal. Musk initially agreed to buy Twitter for $44 billion in April 2022, but later sought to terminate the agreement, citing concerns over the number of fake accounts on the platform and other issues. In response, Twitter sued Musk for breaching the merger agreement, seeking to enforce the terms of the deal.
After a few months of legal wrangling, including a Delaware court case, Musk agreed to go through with the purchase, closing the deal in October 2022.
SEC investigations and lawsuits
In the period leading up to and following Musk’s Twitter acquisition, there were also concerns and investigations involving the SEC.
Musk’s purchases of Twitter shares in 2022 led to scrutiny regarding his filing obligations. The SEC questioned whether Musk’s late disclosure of his stock purchases violated securities laws.
The public comments of Musk on Twitter about the platform’s user numbers, content moderation policies, and other issues were sometimes seen as potentially misleading or market-moving, drawing regulatory attention.
In 2018, Musk had already settled with the SEC for a previous incident involving his tweet about taking Tesla private at $420 per share. The SEC has historically scrutinized Musk’s social media posts to ensure compliance with securities regulations.
Employee lawsuits and allegations
After Musk took over Twitter, there were also numerous lawsuits filed by former employees. These suits stemmed from mass layoffs and other significant changes at the company, including wrongful termination. Many employees sued over being laid off without proper notice or severance.
Twitter also faced claims of discriminatory practices regarding gender and other forms of workplace bias following the layoffs.
These lawsuits are part of the ongoing legal matters Twitter, aka X faces after Musk’s purchase.
Shareholder lawsuits
Some Twitter shareholders filed lawsuits, arguing that Musk’s actions such as delaying his offer to buy the company or disparaging it, publicly harmed the company and its value. These lawsuits were partly aimed at holding Musk accountable for allegedly misleading or delaying the acquisition, which caused stock price volatility.
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According to the SEC’s latest civil complaint, filed in U.S. District Court in Washington, D.C., Musk was more than 10 days late in reporting that material information, “allowing him to underpay by at least $150 million for shares he purchased after his financial beneficial ownership report was due.” Investors may have bid up the stock had they known about Musk’s purchases and interest in the company.
Musk’s acquisition of Twitter continues to be marked by numerous legal challenges. He faces ongoing scrutiny from the SEC regarding stock disclosures and public statements, while employees file lawsuits over layoffs and workplace conditions. Shareholders also pursue legal action, alleging Musk’s actions harm Twitter’s value.
These lawsuits reflect the complexities of Musk’s ownership and the legal and regulatory hurdles he navigates. The situation highlights the turbulent nature of high-profile corporate acquisitions and the challenges Musk encounters in managing his ventures. As of now, the legal landscape surrounding Musk and X remains dynamic and contentious.