With time running out on the Biden administration, the US Securities and Exchange Commission (SEC) is suing Elon Musk in federal court. Although the appeal in question is simple, the timing of the claim is especially complicated.
The SEC’s lawsuit focuses on Musk’s acquisition of Twitter shares in early 2022. According to the complaint, Musk never notified the agency that he had purchased more than 5% of the company’s common stock within 10 business days. If true, this delay would violate federal security laws. “As a result, Musk was able to purchase shares at very low prices, allowing him to underpay $150 million for bonds he purchased after his beneficial ownership report expired,” alleges the SEC, which has requested a trial with jury.
A perfect bad moment
“It seems like a simple case about a clear violation of a well-established rule by the SEC. You either file the paperwork within 10 days or you don’t,” said James Park, a professor at the University of California, School of Law. Los Angeles (UCLA) specialized in securities regulation and corporate law. The Commission claims that the tycoon only acquired enough shares to cross that threshold on March 14, 2022 and disclosed his ownership until April 4. Technically the delay was 11 days, since it continued acquiring shares until March 24.
However, it took almost three years for the SEC to file a lawsuit. “The question is why he does it now. “The only plausible answer is that they want to do it before the administration changes.”refutes David Rosenfeld, former co-director of the SEC’s enforcement office in New York and currently a professor at Northern Illinois University School of Law. Rosenfeld notes that he did not thoroughly review the SEC complaint.
The change in the executive branch, which will occur in less than a week, creates a more favorable regulatory environment for Musk, who donated hundreds of millions of dollars to pro-Trump political action committees, and was reportedly the close advisor to the elector president during the transition period. Current SEC Chairman Gary Gensler is likely to be replaced by Trump’s nominee, Paul Atkins, widely seen as a supporter of looser regulation.
Musk’s lawyer, Alex Spiro, declares that the complaint is a parting blow: “As the SEC Chairman retires and leaves office, the multi-year harassment campaign against Mr. Musk concludes with the filing of a single-count lawsuit,” he wrote in an email.
The estimated value of TikTok’s US operations ranges between $40 billion and $50 billion.
Musk extended the inevitable
Although the filing comes just before Trump’s inauguration on January 20, the investigation that led to this appeal has been years in the making. The agency summoned Musk in May 2023 to collect his testimony, however, the businessman canceled two days before the scheduled appointment in September. A federal court upheld a previous decision to force him to testify in May 2024; The lawyers flew out to interview him on September 10, but he stood them up once again to attend a SpaceX launch.
That is to say, the reason this has taken so long is, at least in part, Musk’s ability to drag it out. And although the filing of the lawsuit at the end of Biden’s term seems suspicious, according to Adam Pritchard, co-author of the book Securities Regulation: Cases and Analysis and professor at the University of Michigan Law School “It is not at all unusual for enforcement actions to be initiated after an election with a change in administration on the horizon. Many attorneys will want to resign, and they want to take action before they leave.”
And now that the SEC has embarked on the path of litigation? Let’s not expect Atkins to necessarily provide him with an exit ramp. “I would be surprised if the new administration completely dropped the case. It is possible that the new administration could reach a deal for a symbolic amount, but that would be problematic because it would show favoritism. and would demonstrate that important SEC rules can be violated without penalty,” adds Park.
Pritchard argues that the case is unlikely to be settled precisely because it is so simple: “This is not a situation where you would think that the Enforcement Division has overstepped its bounds.” Rosenfeld concludes that under normal circumstances, the vast majority of SEC cases settle; but Given that Musk seems unwilling to do so so far, the SEC’s first high-profile case under a second Trump term could well turn out to be against his “most important benefactor.”.
Article originally published in WIRED. Adapted by Alondra Flores.
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