Musk’s Twitter Takeover Lawsuit: Dismissal Bid Fails
- A federal judge has rejected Elon Musk’s attempt to dismiss a lawsuit brought by the U.S.
- The SEC initially sued Musk in January 2025, claiming he delayed filing the required disclosures when he surpassed a 5% ownership threshold in Twitter.
- According to the SEC, this delay allowed Musk to acquire hundreds of millions of dollars’ worth of additional shares at a discount.
A federal judge has rejected Elon Musk’s attempt to dismiss a lawsuit brought by the U.S. Securities and Exchange Commission (SEC) concerning his acquisition of Twitter, now known as X. The lawsuit alleges that Musk failed to promptly disclose his growing stake in the company in 2022, potentially costing other investors over $150 million.
SEC Alleges Delayed Disclosure Benefited Musk
The SEC initially sued Musk in January 2025, claiming he delayed filing the required disclosures when he surpassed a 5% ownership threshold in Twitter. U.S. Federal securities law mandates that investors publicly disclose their ownership when it reaches 5% of a publicly traded company’s shares within 10 calendar days. The SEC contends that Musk waited approximately 11 days, continuing to purchase shares during that period at artificially lowered prices because the market was unaware of his increasing stake.
According to the SEC, this delay allowed Musk to acquire hundreds of millions of dollars’ worth of additional shares at a discount. The agency argues that this conduct violated disclosure rules designed to promote transparency and protect market integrity, ultimately benefiting Musk at the expense of other investors.
Judge Rejects Musk’s Arguments for Dismissal
On , U.S. District Judge Sparkle Sooknanan in Washington, D.C., ruled against Musk’s motion to dismiss the lawsuit. Musk had argued that the SEC overreached in its pursuit of the case, suggesting it was motivated by his criticism of the agency. He also claimed the case amounted to “selective enforcement” of federal securities laws and that the proposed $150 million payout was an excessive fine violating the Eighth Amendment of the Constitution.
Judge Sooknanan, in a 45-page decision, stated that Musk’s arguments did not warrant dismissal. She cited congressional intent to protect investors, explaining that the 10-day disclosure requirement is designed to prevent investors from buying shares cheaply while simultaneously pursuing control of a company. The judge’s order indicated a “straightforward application of the law” supported the continuation of the lawsuit.
Musk’s Acquisition of Twitter/X
The lawsuit stems from events preceding Musk’s eventual acquisition of Twitter in 2022. After amassing a significant stake, Musk ultimately purchased the company for $44 billion, taking it private and rebranding it as X. The SEC’s case focuses specifically on the period before the acquisition, alleging that the delayed disclosure of his initial stake provided an unfair advantage.
SEC Seeks Financial Penalties
The SEC is seeking to recover $150 million, representing the alleged savings Musk realized due to the delayed disclosure, in addition to a civil fine. Musk has characterized the delay as inadvertent. He also argued that the $150 million penalty is disproportionate, exceeding the $100,000 penalty sought in similar cases.
Legal Challenges and Ongoing Litigation
Musk’s legal team initially sought to dismiss the suit in August, labeling it a waste of court and taxpayer resources. However, Judge Sooknanan’s ruling allows the SEC’s claims to move forward. Lawyers for Musk did not immediately respond to requests for comment following the judge’s decision. An SEC spokesperson also declined to comment.
The case highlights the SEC’s ongoing scrutiny of high-profile figures and their compliance with securities regulations. The outcome of the lawsuit could have significant implications for future disclosures of large stake acquisitions in publicly traded companies. It also underscores the importance of adhering to the established timelines for reporting ownership changes, even for individuals with substantial influence and resources.
The SEC requires shareholders to disclose within 10 calendar days when they reach 5% ownership in order to protect investors who might otherwise be kept in the dark and sell their own stock. This requirement is intended to ensure a level playing field and prevent those seeking control of a company from exploiting information asymmetries to their advantage.