Musk Accused of Defrauding Investors, Faces SEC Lawsuit for Delaying Twitter Stake Disclosure

By Moon Harper

May 31, 2024 01:22 AM EDT

According to a lawsuit filed by a Morgan Stanley executive who helped Musk secretly amass shares in the social media firm, Elon Musk allegedly ignored the US Securities and Exchange Commission's (SEC) repeated warnings about the obligations of disclosing his Twitter stake in 2022.

Musk Being Fully Aware of The Twitter Stake Disclosure

According to the lawsuit, Elon Musk and his associate Jared Birchall were aware of and discussed the rule requiring disclosure of more than a 5% stake in Twitter, citing testimonies from two men in an investigation by the SEC.

Musk Benefiting From Defrauding Investors

In an amended lawsuit filed on Tuesday in a Manhattan federal court, a Twitter investor accuses Elon Musk of defrauding investors by postponing the disclosure of his Twitter stake to acquire shares at lower prices. The Oklahoma firefighter's pension fund claimed that Musk saved over $200 million by increasing his Twitter stake secretly, to the disadvantage of particular investors.

Musk and Birchall enlisted an unnamed managing director at Morgan Stanley to devise a covert trading strategy, as per the lawsuit. The strategy aimed to conceal Musk's acquisition of Twitter stock and enable him to purchase shares at prices lower than their actual value.

Neither Musk nor Birchall were available to make an immediate comment. In a statement, Morgan Stanley clarified that it is not a defendant in this lawsuit.

As per the lawsuit, the Morgan Stanley executive consistently urged Birchall to seek legal advice regarding the 5% disclosure requirements. Birchall allegedly informed the executive that legal consultations had taken place, although this was not true until he had accumulated a stake of over 9% in Twitter on April 1, 2022.

Musk's Being The Busiest Person in The Planet

In October 2022, Musk ultimately purchased Twitter for $44 billion and changed the company's name to X.

The lawsuit claimed that despite repeated warnings from the Morgan Stanley executive about the necessity of obtaining legal advice, Birchall and Musk knowingly chose not to disclose their knowledge, as it would have significantly increased the cost and public visibility of Musk's purchases. Musk's legal team had previously asserted that their client, being "one of the busiest people on the planet," might have inadvertently failed to disclose information.

Series of Musk's Federal Negligence

The lawsuit characterized the violation as the latest instance in Musk's history of neglecting federal securities laws and showing contempt for the SEC and its regulations.

Musk and the top US markets regulator have been engaged in a longstanding feud, dating back to 2018 when Musk tweeted about having "funding secured" to privatize the electric carmaker Tesla.

Musk asserted that his tweet was intended to inform investors rather than deceive them. He added that his goal was to publicly disclose his interest in taking Tesla private to prevent the news from being leaked selectively. Musk further explained that he had already discussed his interest with the Tesla board and Saudi Arabia's sovereign wealth fund, the Public Investment Fund.