A U.S. federal judge has denied Elon Musk’s request to dismiss a lawsuit brought by the
U.S. Securities and Exchange Commission, allowing the regulator’s claims over his Twitter stock disclosures to move forward.
The lawsuit stems from Musk’s purchase of a significant stake in Twitter in early 2022, before he ultimately acquired the company later that year and rebranded it as X. Under federal securities law, investors who acquire more than 5% of a publicly traded company’s shares are required to disclose that ownership within 10 calendar days. The SEC alleges Musk failed to meet that deadline.
SEC Claims Disclosure Delay Harmed Investors
According to the SEC, Musk crossed the 5% ownership threshold in Twitter but waited approximately 11 additional days beyond the legal deadline before publicly disclosing his position. During that time, the agency claims Musk continued purchasing Twitter shares at prices that were artificially low because the market was unaware of his growing stake.
Regulators allege the delay allowed Musk to acquire hundreds of millions of dollars’ worth of additional shares at a discount, resulting in substantial savings while other investors sold shares without knowing a major buyer was involved. The SEC argues this conduct violated disclosure rules designed to promote transparency and protect market integrity.
The lawsuit seeks disgorgement of alleged ill-gotten gains, civil monetary penalties, and injunctive relief.
Musk Challenges the SEC’s Authority
Musk has strongly disputed the SEC’s allegations and moved to dismiss the case, arguing that the enforcement action represents regulatory overreach. His legal team contended that the delay was inadvertent and did not justify the penalties sought by the agency.
In filings, Musk also raised constitutional arguments, asserting that the SEC’s enforcement approach infringed on his rights and exceeded the agency’s statutory authority. He characterized the lawsuit as punitive and inconsistent with how similar disclosure violations have been handled in the past.
Despite these arguments, the court declined to halt the case at this stage.
Federal Judge Allows Case to Proceed
U.S. District Judge Sparkle Sooknanan, sitting in Washington, D.C., ruled that the SEC’s complaint plausibly alleges
violations of federal securities law. The judge found that Musk’s constitutional and procedural challenges were insufficient to warrant dismissal before factual issues are fully examined.
In her decision, the judge emphasized that disclosure requirements play a central
role in protecting investors and maintaining fair markets. She also rejected the argument that the SEC’s enforcement interferes with free speech, noting that disclosure obligations regulate conduct, not expression.
As a result, the lawsuit will now move forward into discovery and further litigation.
Longstanding Tensions Between Musk and the SEC
The Twitter disclosure case is the latest chapter in a long and often contentious relationship between Musk and the SEC. In 2018, Musk reached a settlement with the agency over social media posts claiming he had secured funding to take Tesla private. That agreement required Musk to pay fines, step down as Tesla’s chairman for a period, and have certain communications pre-approved by legal counsel.
Since then, Musk has repeatedly criticized the SEC publicly, accusing it of selective enforcement and stifling innovation. The current lawsuit has renewed scrutiny of how securities laws apply to high-profile executives who wield significant influence over markets.
Broader Implications for Disclosure Rules
Legal analysts say the case could have broader implications for investor disclosure enforcement, particularly when it involves prominent figures and large-scale stock acquisitions. Schedule 13D filings the disclosure at issue in Musk’s case are intended to alert the market to potential changes in corporate control or activist involvement.
If the SEC ultimately prevails, the case could reinforce strict adherence to disclosure timelines, regardless of intent or status. A ruling in Musk’s favor, on the other hand, could invite closer examination of how penalties are calculated and applied in similar situations.
What Happens Next
With the motion to dismiss denied, the case will proceed through the federal court system. The next phase is expected to include document production, depositions, and potential motions for summary judgment. A settlement remains possible, though neither side has indicated a willingness to resolve the matter at this stage.
For now, the ruling represents a notable setback for Musk and a validation of the SEC’s
authority to pursue enforcement actions involving disclosure violations tied to major stock acquisitions.
As the litigation unfolds, the outcome will be closely watched by investors, corporate executives, and securities law practitioners alike, particularly given Musk’s influence and the high-profile nature of the dispute.
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