SEC Seeks Sanctions Against Elon Musk for Defying Twitter Acquisition Deposition Order
The Securities and Exchange Commission (SEC) has requested a federal judge to impose sanctions on Elon Musk if he continues to disregard the court’s order to appear for a deposition in an investigation related to his 2022 acquisition of Twitter. The SEC is probing whether Musk or any individuals associated with him engaged in securities fraud during a period when the Tesla CEO sold shares in his automotive company and acquired a stake in Twitter, prior to launching his leveraged buyout of the platform, now known as X.
Key Takeaways:
- The SEC alleges that Musk has twice defied court orders, first by not appearing for a deposition in September 2023 despite receiving a lawful administrative subpoena, and again last week by ignoring a clear court order.
- The SEC is concerned that Musk’s continued defiance will set a precedent for future investigations.
- The SEC wants the court to hold Musk in civil contempt for canceling a deposition in September, which forced the agency to send personnel to Los Angeles for a deposition that ultimately did not take place.
- Musk’s attorney argues that drastic action is unwarranted, as the SEC and Musk had agreed to reschedule the deposition.
- A separate lawsuit concerning the Twitter deal accuses Musk of deliberately concealing his investments in and intentions to acquire Twitter, potentially influencing shareholder decisions and creating an unfair advantage.
The SEC’s Concerns and Musk’s Response
The SEC’s request for sanctions stems from Musk’s apparent unwillingness to cooperate with their ongoing investigation. In their filing, the SEC argues that Musk "has now failed to appear before the SEC twice," asserting that "Musk has shown a clear disregard for the SEC’s lawful efforts to investigate these matters." They highlight that Musk’s actions have "resulted in significant waste of the Commission’s time and resources".
In response, Musk’s attorney, Alex Spiro, argues that the SEC’s request for sanctions is "inappropriate," emphasizing that the SEC and Musk had agreed to reschedule the deposition amidst an “emergency”. Spiro also emphasizes that Musk and his companies have "cooperated and are cooperating with the SEC in multiple other ongoing investigations."
A Separate Lawsuit Adds Fuel to the Fire
Separately, the Oklahoma Firefighters Pension and Retirement System has filed a civil lawsuit against Musk in a New York federal court, alleging that he intentionally concealed his increasing investments in Twitter and his intentions to acquire the company. The lawsuit asserts that Musk’s actions, by failing to clearly disclose his investments and intentions, influenced other shareholders’ decisions and created an uneven playing field.
The lawsuit’s discovery process uncovered correspondence between an unnamed Morgan Stanley contact and Jared Birchall, who manages Musk’s finances. In these messages, the Morgan Stanley contact reveals that Musk’s strategy for acquiring Twitter stock was shrouded in secrecy, stating "No one knows what is going on and why but you and me. Not compliance, not anyone."
Looking Ahead
The SEC’s request for sanctions against Musk underscores the serious nature of the ongoing investigations. If the court were to impose sanctions, it could have a significant impact on future investigations, potentially sending a strong message about the importance of cooperating with regulatory bodies.
The separate lawsuit adds another layer of complexity to the situation, potentially exacerbating the pressure on Musk as he faces accusations of deliberately misleading shareholders. The outcome of these legal battles could have lasting ramifications for Musk, his companies, and the broader financial landscape.
