South African immigrant Elon Musk, owner of Tesla and SpaceX, has kicked up major controversy as a senior advisor to the president. In the past month, Musk has tried to illegally shut down the US Agency for International Development, told government workers to write an email justifying their job or be fired, lied about how much his unofficial and unregulated “Department of Government Efficiency” is saving the American public, and gave access to every American’s tax, social security, and bank information to a group of unvetted teen online trolls.
However, Musk’s political and personal issues may soon be outshined by his business issues. In an 11-page complaint, the Securities and Exchange Commission (SEC) claims Musk failed to properly disclose that he had acquired a major stake in Twitter in the year 2022. This allegedly lost investors more than $150 million. This lawsuit may soon drag Musk out of the White House and into the courthouse.
How? Since Elon Musk is the richest person in the world on paper, other people buy the stocks he buys. By not revealing that he had purchased such large amounts of stock, Musk kept the price of Twitter stock “artificially low.” So low, in fact, that other shareholders started losing money and had to sell their shares (most of which were bought up by Musk). Not only is this type of business practice unethical, it’s illegal.
How Musk Bamboozled Investors
Elon first started buying shares in Twitter in late January 2022. At the time, Twitter had a struggling stock price and was considered a poor investment. Over the next couple of months, Musk continued to buy shares of the company in secret. By March 14, he owned 9.2% of all Twitter stock, making him the largest shareholder.
As the majority owner, Musk was required by law to disclose this stake so the public would know who, essentially, owned the company. However, Musk missed the agency’s required 10-day window ending on March 24 and disclosed his stake on April 4. Upon the disclosure to the public, Twitter’s stock price rose 27% in a single day. Every one of his shares became worth more than they were when he originally bought them.
The SEC alleges the filing deadline wasn’t missed by Musk by accident because Musk bought more than $500 million in Twitter shares during the period between March 24 and April 4. He purchased those shares at a value he knew was underinflated and cheated the owners of those $500 million in shares out of the 27% value boost that would have happened had he followed the law.
It Wasn’t the First Time
Elon Musk has been the target of stock manipulation lawsuits by the SEC before. While Musk was starting to buy his first Twitter shares in 2022, he and his brother Kimbal faced a government investigation over social media posts where Musk hinted that he would be selling his stake in Tesla; this caused Tesla stock to drop in value, which the Musk brothers then bought.
He also pulled this trick in 2019 when he announced he was taking Tesla private, which temporarily inflated the stock price when it was dropping. The SEC sued Elon Musk when they discovered he hadn’t secured the funding to take the company private; for this infraction, Musk had to pay a $20 million fine and step down from Tesla’s board of directors.
Ironically, Musk’s bad business practices caught up with him when he announced at the end of April 2022 that he would buy Twitter for $44 billion. Shares skyrocketed in value before Musk announced that he had changed his mind and would sell all his shares immediately—this would have caused the Twitter stock to crash while making Musk millions. However, Twitter refused to let Musk back out of the deal, and six months later, Musk agreed to buy Twitter to avoid a lawsuit.
Will Musk Get Away This Time?
With the SEC’s current lawsuit about to go to court (Musk refused to settle in December), Musk might be on the hook for over $150 million to be paid to the investors he swindled and, if their previous ruling holds true, a diminished role at X (the current rebrand of Twitter). However, Musk has a new powerful ally in government: the president.
Musk and his efficiency cronies have been given carte blanche by the new administration to go into any government department and root out “waste, fraud, and abuse.” What this has mostly amounted to so far is Musk cutting staff, taking resources, and taking over government agencies that he has taken issue with in the past. USAID became Musk’s target after the agency started investigating Musk’s Starlink internet company. On February 18, he fired 10% of workers at NASA, a rival to his SpaceX. Musk also fired around 2,000 at the Department of Energy, which regulates his Solar City and Tesla businesses (though around 350 were offered their jobs back when it turned out that they were responsible for maintaining America’s nuclear weapons).
With this track record, experts believe the SEC will be in the crosshairs of Musk soon. However, it doesn’t seem like Musk can do much about this lawsuit. The evidence in the case is overwhelming, and the action—his not filing on time—is cut and dry. The court doesn’t need to prove that Musk was trying to defraud Twitter stockholders, only that he did. The SEC has even gone to the trouble of declaring that the lawsuit is not politically motivated to ensure it goes through. Musk is also facing several lawsuits for his actions with other US agencies, so the courts may stop him from stopping the SEC.
