On January 14, 2025, the SEC filed a complaint against Elon Musk in the U.S. District Court for the District of Columbia, alleging that Musk failed to timely file an initial beneficial ownership report under Section 13(d) of the Securities Exchange Act of 1934 (Exchange Act) after he acquired more than 5% of the outstanding common stock of Twitter, Inc. (Twitter). The complaint seeks disgorgement of the financial gains Musk obtained by acquiring shares of Twitter between the date when his investment should have been made public and the date on which his initial beneficial ownership report was finally filed. However, the SEC’s complaint does not explicitly allege that Musk was ineligible to file on Schedule 13G or that he should have earlier filed a Schedule 13D.
Specifically, the SEC’s complaint alleges that Musk acquired beneficial ownership of more than 5% of Twitter’s outstanding common stock by March 14, 2022, which, under the filing deadlines in effect at the time, would have required disclosure on Schedule 13D or, if Musk were eligible, Schedule 13G, within 10 calendar days, that is, by March 24, 2022. However, Musk did not disclose his position until the morning of April 4, 2022, when he filed a Schedule 13G, after which Twitter’s stock price jumped by more than 27%. The complaint alleges that during this time when Musk was required to disclose his position but did not, Musk continued to purchase Twitter shares, ultimately increasing his ownership to over 9%. However, because Musk failed to timely disclose his beneficial ownership by March 24, 2022, the SEC’s complaint alleges he was able to buy shares at “artificially low prices.” Specifically, the complaint alleges that Musk paid at least $150 million less for the shares he purchased between March 25 and April 4, 2022, than he would have paid if he had timely disclosed his position in Twitter, thereby harming investors that sold Twitter shares during this time unaware of Musk’s holdings and his investment purpose.
The SEC seeks disgorgement of ill-gotten gains plus prejudgment interest in addition to a civil penalty and a permanent injunction against future violations of Section 13(d) of the Exchange Act and Rule 13d-1 thereunder.
Key Takeaway 1: SEC Went With the Highest Likelihood of Success
The SEC’s claim for relief focuses exclusively on Musk’s failure to timely disclose his significant ownership stake in Twitter under Section 13(d) of the Exchange Act and Rule 13d-1 thereunder. The timeliness of the disclosure is easy to prove: The event date at the top of Musk’s initial filing under Section 13(d) — a Schedule 13G filed under Rule 13d-1(c) — is more than 10 calendar days before the filing date of the Schedule 13G, and thus Musk’s initial beneficial ownership report was clearly untimely based on the requirements set forth in Rule 13d-1.
Notably, the SEC’s complaint does not explicitly allege that Musk was ineligible to file on Schedule 13G under Rule 13d-1(c) or that Musk should have earlier transitioned to a Schedule 13D – although it does imply as much. A Schedule 13G filed under Rule 13d-1(c) requires the filer (here, Musk) to certify that the reported securities (here, shares of Twitter common stock) are “not held for the purpose of or with the effect of changing or influencing the control of the issuer of the securities and were not acquired and are not held in connection with or as a participant in any transaction having that purpose or effect” — although such certification was erroneously omitted from Musk’s Schedule 13G for Twitter. In the complaint, the SEC states that Musk’s filing of a Schedule 13G indicates “he had purportedly not acquired the Twitter common stock with the purpose of changing or influencing the control of Twitter” (italics added; underlining in original). Further, the SEC’s complaint describes in detail Musk’s communications with the Twitter board of directors and members of management in late March and early April regarding his obtaining a seat on the board and possibly acquiring Twitter — which discussions were had prior to the April 4 event date of Musk’s Schedule 13D (when Musk transitioned from Schedule 13G to Schedule 13D). These discussions have no direct bearing on the SEC’s claim for relief, but they do indicate that Musk had a control purpose with respect to Twitter, which would have required Musk to file Schedule 13D and disclose his investment purpose.
Given the facts and circumstances raised in the complaint, including the discussions surrounding Musk’s appointment to the Twitter board and his potential takeover of Twitter, presumably the SEC enforcement staff was considering making additional claims against Musk related to his disclosures on Schedule 13G and Schedule 13D. However, the timing of the filing of this complaint — nearly three years after the filings were made but mere days before Chairman Gary Gensler stepped down as Chairman of the SEC and Donald Trump was sworn in for his second term as President — seems to suggest that the SEC wanted to file the complaint against Musk before this significant change in tide (and tone) at the SEC and opted to keep the claim limited to the clearest and cleanest allegation of a violation that leaves little room for argument.
Key Takeaway 2: Potential for Aggressive Interpretation of SEC’s Silence
By limiting its complaint to the timeliness issue, making only insinuations regarding Musk’s eligibility to file a Schedule 13G while he was contemplating taking control of the company, the SEC could have actually opened the door for more aggressive interpretations of when a reporting person must transition from Schedule 13G to Schedule 13D. Here, the event date of Musk’s Schedule 13D was April 4, 2022, the same date he entered into a letter agreement with Twitter pursuant to which Twitter agreed to appoint Musk to Twitter’s board of directors. Other large shareholders could use this fact pattern to argue, albeit certainly not without risk, that they can engage in control-type discussions with or concerning an issuer without converting from Schedule 13G to Schedule 13D until a final arrangement or agreement is reached.
Specifically, the SEC’s complaint alleges that Musk acquired beneficial ownership of more than 5% of Twitter’s outstanding common stock by March 14, 2022, which, under the filing deadlines in effect at the time, would have required disclosure on Schedule 13D or, if Musk were eligible, Schedule 13G, within 10 calendar days, that is, by March 24, 2022. However, Musk did not disclose his position until the morning of April 4, 2022, when he filed a Schedule 13G, after which Twitter’s stock price jumped by more than 27%. The complaint alleges that during this time when Musk was required to disclose his position but did not, Musk continued to purchase Twitter shares, ultimately increasing his ownership to over 9%. However, because Musk failed to timely disclose his beneficial ownership by March 24, 2022, the SEC’s complaint alleges he was able to buy shares at “artificially low prices.” Specifically, the complaint alleges that Musk paid at least $150 million less for the shares he purchased between March 25 and April 4, 2022, than he would have paid if he had timely disclosed his position in Twitter, thereby harming investors that sold Twitter shares during this time unaware of Musk’s holdings and his investment purpose.
The SEC seeks disgorgement of ill-gotten gains plus prejudgment interest in addition to a civil penalty and a permanent injunction against future violations of Section 13(d) of the Exchange Act and Rule 13d-1 thereunder.
Key Takeaway 1: SEC Went With the Highest Likelihood of Success
The SEC’s claim for relief focuses exclusively on Musk’s failure to timely disclose his significant ownership stake in Twitter under Section 13(d) of the Exchange Act and Rule 13d-1 thereunder. The timeliness of the disclosure is easy to prove: The event date at the top of Musk’s initial filing under Section 13(d) — a Schedule 13G filed under Rule 13d-1(c) — is more than 10 calendar days before the filing date of the Schedule 13G, and thus Musk’s initial beneficial ownership report was clearly untimely based on the requirements set forth in Rule 13d-1.
Notably, the SEC’s complaint does not explicitly allege that Musk was ineligible to file on Schedule 13G under Rule 13d-1(c) or that Musk should have earlier transitioned to a Schedule 13D – although it does imply as much. A Schedule 13G filed under Rule 13d-1(c) requires the filer (here, Musk) to certify that the reported securities (here, shares of Twitter common stock) are “not held for the purpose of or with the effect of changing or influencing the control of the issuer of the securities and were not acquired and are not held in connection with or as a participant in any transaction having that purpose or effect” — although such certification was erroneously omitted from Musk’s Schedule 13G for Twitter. In the complaint, the SEC states that Musk’s filing of a Schedule 13G indicates “he had purportedly not acquired the Twitter common stock with the purpose of changing or influencing the control of Twitter” (italics added; underlining in original). Further, the SEC’s complaint describes in detail Musk’s communications with the Twitter board of directors and members of management in late March and early April regarding his obtaining a seat on the board and possibly acquiring Twitter — which discussions were had prior to the April 4 event date of Musk’s Schedule 13D (when Musk transitioned from Schedule 13G to Schedule 13D). These discussions have no direct bearing on the SEC’s claim for relief, but they do indicate that Musk had a control purpose with respect to Twitter, which would have required Musk to file Schedule 13D and disclose his investment purpose.
Given the facts and circumstances raised in the complaint, including the discussions surrounding Musk’s appointment to the Twitter board and his potential takeover of Twitter, presumably the SEC enforcement staff was considering making additional claims against Musk related to his disclosures on Schedule 13G and Schedule 13D. However, the timing of the filing of this complaint — nearly three years after the filings were made but mere days before Chairman Gary Gensler stepped down as Chairman of the SEC and Donald Trump was sworn in for his second term as President — seems to suggest that the SEC wanted to file the complaint against Musk before this significant change in tide (and tone) at the SEC and opted to keep the claim limited to the clearest and cleanest allegation of a violation that leaves little room for argument.
Key Takeaway 2: Potential for Aggressive Interpretation of SEC’s Silence
By limiting its complaint to the timeliness issue, making only insinuations regarding Musk’s eligibility to file a Schedule 13G while he was contemplating taking control of the company, the SEC could have actually opened the door for more aggressive interpretations of when a reporting person must transition from Schedule 13G to Schedule 13D. Here, the event date of Musk’s Schedule 13D was April 4, 2022, the same date he entered into a letter agreement with Twitter pursuant to which Twitter agreed to appoint Musk to Twitter’s board of directors. Other large shareholders could use this fact pattern to argue, albeit certainly not without risk, that they can engage in control-type discussions with or concerning an issuer without converting from Schedule 13G to Schedule 13D until a final arrangement or agreement is reached.
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