The SEC is suing Elon Musk. It’s all about timing

With the clock running out on the Biden administration, the US Securities and Exchange Commission filed suit Elon Musk in federal court. The statute in question is relatively straightforward. The moment of appeal is more complicated.

The SEC complaint focuses on Musk’s acquisition of Twitter shares in early 2022. According to the complaint, Musk failed to notify the agency that he had acquired more than five percent of the company’s common stock within 10 calendar days. If true, that delay would violate federal security laws. “As a result, Musk was able to continue buying shares at artificially low prices,” SEC claims“allowing him to pay at least $150 million for shares he purchased after the beneficial ownership report expired.” The SEC requested a lawsuit.

This should all be pretty simple. “It seems like a clear case of a clear violation of a well-established SEC rule,” said James Park, a professor at the UCLA School of Law who focuses on securities regulation and corporate law. You either submit your documents within 10 days or you don’t; The SEC claims that Musk did not. He acquired enough shares to pass that threshold by March 14 of that year, the agency said, and did not publicly disclose his ownership until April 4. (The SEC argued that Musk was technically 11 days late because he continued to acquire shares through March 24.)

And yet it took almost three years for the SEC to file suit. “The question is why are they doing it now,” said David Rosenfeld, former co-head of the SEC’s New York-based enforcement office and now a professor at Northern Illinois College of Law. “The only plausible answer is that they want to do it before the administration changes.” Rosenfeld notes that he has not thoroughly reviewed the SEC’s complaint.

This executive shakeup, which comes in less than a week, creates a more favorable regulatory environment for Musk, who donated hundreds of millions of dollars to PACs supporting Donald Trump’s presidential campaign and has reportedly been a close adviser to the president-elect during the transition period. Current SEC Chairman Gary Gensler is likely to be replaced by Trump nominee Paul Atkins, who is widely seen as supportive a lighter regulatory touch.

Musk’s lawyer, Alex Spiro, says he sees the complaint as a parting shot. “While the SEC stepped down and left office, the SEC’s multi-year campaign of harassment against Mr. Musk culminated in the filing of a one-time complaint against Mr. Musk,” he wrote in an email.

Although the filing comes just before Trump’s inauguration, the investigation that led to this complaint has been years in the making. The agency was scheduled to subpoena Musk in May 2023 to obtain his testimony in the investigation and has said that Musk canceled them two days before his scheduled testimony in September. Federal court maintained an earlier decision to compel him to testify in May 2024; SEC lawyers flew out to interview him on September 10, but he stand them up once again to attend a SpaceX launch.