Elon Musk is the most politically powerful executive in corporate America. That still may not be enough to allow him to escape the wrath of Wall Street’s top regulator.
The Securities and Exchange Commission took a parting shot at Musk late Tuesday with a lawsuit related to his $44 billion purchase of Twitter, the social media company that is now known as X.
Yet while a new administration is about to take charge in Washington, the agency’s leadership is likely to pursue the lawsuit, several former SEC officials said. Despite Musk’s tight relationship with President-elect Donald Trump, the allegations are relatively straightforward, and dropping the case altogether could be hard to justify, the officials said.
“The new commission is going to be mindful of not wanting to appear to be doing the bidding of the president’s best buddy,” said David Rosenfeld, a former SEC enforcement attorney. “It’s always possible that they come in and say, ‘You were nuts to do this and we’re going to upend the apple cart.’ But I highly doubt it.”
The lawsuit sets up an early test of how Trump’s pick to chair the SEC — Paul Atkins — would navigate potential clashes with the incoming president’s allies as the top U.S. markets regulator, which oversees broad swaths of Wall Street, the cryptocurrency markets and corporate America.
“You couldn’t have a messier situation,” said a former SEC official, who was granted anonymity because they were not authorized to speak publicly about the case. “It may particularly put the new chair in a very, very challenging position.”
SEC Chair Gary “Gensler couldn’t have left [Atkins] with a bigger mess on his plate to deal with,” the official added.
In an 11-page complaint, the SEC alleged that billionaire Musk failed to properly disclose that he had acquired a major stake in Twitter in 2022. The SEC said that by doing so, he was able to benefit from “artificially low prices” as he bought up the shares, while investors lost out on more than $150 million. (News of Musk’s interest in Twitter shares would likely have sent the stock soaring).
The charge is “a very open-and-shut violation” that is usually settled, said Ann Lipton, a law professor at Tulane University. When Musk’s stake in Twitter passed 5 percent, Lipton said, he was obligated to disclose it publicly. The SEC alleged in its complaint that Musk was 11 days late in filing his disclosure.
“You either filed the form or you didn’t,” Lipton said. “It’s really not hard.”
But Musk is firing back at the agency. He said the SEC is a “Totally broken organization” on X after the lawsuit was filed. And his lawyer, Alex Spiro, called the suit a “single-count ticky tak complaint” that carries a “nominal penalty.”
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“They spend their time on shit like this when there are so many actual crimes that go unpunished,” Musk posted.
Musk has regularly clashed with the SEC over the last decade. The feud began in the first Trump administration when the agency sued the Tesla CEO over his allegedly misleading tweets about taking the electric-car maker private. Shortly after settling the charges, Musk took to “60 Minutes” to express his lack of respect for the SEC.
Years later, he is still criticizing the agency. In December, Musk called the SEC “just another weaponized institution doing political dirty work.”
His attacks on the SEC carry particular weight given the power he’s likely to wield in Trump’s Washington. Musk became a close confidant of the president-elect in the run-up to Election Day, as well as a major contributor. He’s now co-leading the so-called Department of Government Efficiency in a role that will give him new clout to push for potential budget cuts at agencies including the SEC.
Whether Musk will lean into his political connections to push back against the SEC’s latest lawsuit is unclear. Spiro did not immediately respond to a request for comment, nor did the Trump transition when asked for comment about the lawsuit.
Many expect the agency will ultimately settle the case. Rosenfeld said the SEC would likely do so “on terms far more advantageous to Musk than what they have previously offered, but in line with what similar cases have settled for in the past.”
Either way, the lawsuit presents a potential speedbump for Atkins — a former SEC commissioner who has criticized the agency’s enforcement arm over the years. The question of how the SEC will proceed in the case under Atkins, if he’s confirmed, is likely to play a prominent role in his yet-to-be-scheduled confirmation hearing.
“In a way, it feels like this SEC throwing down a gauntlet for future chair Atkins,” said Jill Fisch, a law professor at the University of Pennsylvania.