Elon Musk has settled a civil lawsuit brought by the U.S. Securities and Exchange Commission (SEC). The lawsuit accused Musk, the world’s richest person, of waiting too long in 2022 to reveal his initial purchases of Twitter, now known as X. Under the settlement, disclosed on Monday in a Washington, D.C., federal court, a trust in Musk’s name will pay a $1.5 million civil fine.
Musk did not admit any wrongdoing as part of the settlement. Importantly, he will not have to give up any of the $150 million he allegedly saved by delaying the disclosure. The settlement still needs approval from U.S. District Judge Sparkle Sooknanan, who had rejected Musk’s attempt to dismiss the case in February.
This agreement brings an end to more than seven years of legal battles between Musk and the financial regulator. Their disputes began in September 2018 when the SEC charged him with securities fraud. That earlier charge was for tweeting that he had “secured” funding to potentially take his electric car company, Tesla, private.
Musk settled that previous case by paying a $20 million civil fine, agreeing to let Tesla lawyers review some of his Twitter posts beforehand, and stepping down as Tesla’s chairman. His lawyer, Alex Spiro, stated, “Mr. Musk has now been cleared of all issues related to the late filing of forms in the Twitter acquisition, as we said from the outset he would be.”
The SEC’s January 2023 lawsuit claimed that Musk’s 11-day delay in revealing his initial 5% stake in Twitter in late March and early April 2022 allowed him to buy over $500 million worth of shares at artificially low prices. He only disclosed a 9.2% stake later. The SEC had argued that Musk should pay a civil fine and return the $150 million he supposedly saved at the expense of other investors.
Musk countered that the delay was accidental and accused the SEC of violating his free speech rights by targeting him. The SEC filed its lawsuit against Musk six days before former U.S. President Joe Biden left office. Current SEC Chairman Paul Atkins has since been re-evaluating the regulator’s enforcement priorities.
Amanda Fischer, former chief of staff to Gary Gensler, who led the SEC during the Biden administration, criticized the settlement, calling it “an embarrassing day for the SEC.” She suggested it “should cause the public to question whether the SEC is protecting White House insiders at the expense of ordinary investors.” Musk led the Trump administration’s Department of Government Efficiency, focusing on cost-cutting, before leaving last May.
Robert Frenchman, a partner at Dynamis law firm, noted that the $1.5 million penalty was a “modest sum for the richest person on the planet.” However, he believes it could still deter others from similar violations, stating, “That is a statement to the market that the rules apply to everyone, even to Elon Musk.” Musk completed his $44 billion purchase of Twitter in October 2022. He later integrated Twitter into his AI company xAI, and then folded xAI into his rocket company SpaceX. Forbes magazine estimates Musk’s net worth at $789.9 billion.
Both sides had indicated on March 17 that they were discussing a settlement, just one day after SEC enforcement chief Margaret Ryan abruptly left her position after only six months. Sources familiar with the situation said Ryan’s departure followed disagreements with other agency leaders over enforcement.
A person familiar with the settlement said Musk’s civil penalty is the largest in SEC history for the type of violation he was accused of. This case is separate from another civil lawsuit where a San Francisco jury found Musk liable on March 20 for defrauding Twitter shareholders after he announced the buyout. In that class action, shareholders claimed Musk raised doubts about Twitter’s fake and spam accounts (bots) to try and force a renegotiation of the takeover price or back out of the deal. They argued Musk’s comments caused Twitter’s stock price to drop, leading to their losses. They estimate damages could total $2.5 billion. Musk’s lawyers, including Spiro, are seeking to dismiss that case or get a new trial, calling the verdict “the result of bias and prejudice toward a polarizing defendant.”
