The U.S. Securities and Exchange Commission (SEC) has requested a federal judge to impose sanctions on Elon Musk, CEO of Tesla and owner of the social media platform X (formerly Twitter), for repeatedly avoiding scheduled depositions related to the agency’s probe into his 2022 acquisition of Twitter.
The SEC’s investigation is focused on whether Musk, or anyone working with him, committed securities fraud during the deal. The agency is scrutinizing Musk’s sale of Tesla shares and accumulation of a significant Twitter stake before the $44 billion buyout. Musk, who secured the acquisition through a leveraged buyout, faces increasing pressure from regulators to comply with the court’s orders.
In May 2024, the court ordered Musk to attend a deposition regarding the acquisition. However, Musk has failed to appear twice, prompting the SEC to request sanctions to compel his compliance. According to SEC attorney Robin Andrews, Musk defied both an administrative subpoena in September 2023 and a court order issued earlier this year.
“Musk has now failed to appear before the SEC twice,” Andrews said in a filing on Friday. “The Court must make clear that Musk’s gamesmanship and delay tactics must cease.”
Potential Contempt of Court and Rescheduled Deposition
The SEC revealed that Musk’s deposition was rescheduled for early October 2024 at an SEC office. Despite the rescheduling, Andrews warned the court that without further legal action, Musk may simply not show up again. The SEC has also indicated that it will pursue a “civil contempt” charge against Musk for canceling a prior deposition with only a few hours’ notice on September 10, 2024. The agency highlighted that it had already dispatched personnel to Los Angeles for the interview, incurring significant costs and time losses due to Musk’s absence.
Musk’s attorney, Alex Spiro of Quinn Emanuel, defended his client, stating that any extreme measures would be “inappropriate” given that Musk and the SEC had reached an agreement to reschedule the deposition due to an unspecified emergency. Spiro also noted that Musk and his companies are cooperating with several other ongoing SEC investigations, implying that there was no intention to obstruct the current process.
Civil Lawsuit and Allegations of Concealing Investment Plans
Musk also faces legal challenges beyond the SEC’s probe. The Oklahoma Firefighters Pension and Retirement System has filed a separate civil lawsuit in federal court in New York, accusing Musk of deliberately concealing his progressive investments in Twitter, as well as his eventual plan to acquire the company. The pension fund claims that Musk’s lack of transparency regarding his Twitter stock purchases affected other shareholders, leaving them at a disadvantage and influencing their decision-making processes.
In discovery for this case, evidence surfaced in the form of correspondence between a Morgan Stanley representative and Jared Birchall, who manages Musk’s personal finances. The messages, dated February 2022, indicated that Musk’s strategy for accumulating Twitter shares was kept highly confidential. “No one knows what is going on and why but you and me,” the Morgan Stanley contact wrote to Birchall.
Escalating Legal Troubles for Musk
The legal tensions surrounding Musk’s acquisition of Twitter highlight the complexities of his dealings with financial regulators. His aggressive approach to business and frequent legal clashes have kept both shareholders and regulators on edge. The SEC’s investigation into potential securities fraud and the pension fund’s lawsuit could prove costly for Musk, both financially and reputationally.
As Musk prepares for the rescheduled deposition in October, legal experts speculate that failure to comply again could lead to harsher penalties, including fines or further legal action. With the SEC and civil lawsuits converging, the next steps in these cases will be closely watched by investors and industry observers alike.
This ongoing legal battle further complicates Musk’s leadership as he continues to juggle his roles as CEO of Tesla, owner of X, and head of several other ventures including SpaceX and Neuralink. The outcomes of these legal challenges may have broader implications for his businesses, including potential impacts on investor confidence and market valuations.
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