Elon Musk Can’t Stall SEC Investigation, Judge Says
Federal judge in San Francisco likely to order billionaire’s cooperation with agency’s probe into his 2022 takeover of Twitter
SAN FRANCISCO—A federal judge said she would probably order Elon Musk to cooperate with a Securities and Exchange Commission investigation related to his 2022 takeover of Twitter.
During a hearing Thursday in San Francisco, Magistrate Judge Laurel Beeler said the SEC has broad investigatory powers.
The SEC’s probe looks at whether Musk committed civil fraud by omitting information about his plans for Twitter when he bought up the company’s shares between January and April 2022, according to recent court filings. Musk has long clashed with the SEC, which separately accused him of fraud in 2018, and the billionaire sought the San Francisco court’s protection from what he considers regulatory harassment.
He is contesting the SEC’s ability to continue asking him for information about Twitter, which he has since renamed X. Judge Beeler listened to his lawyers’ arguments but said she planned to order the two sides to figure out a location and date for Musk’s testimony. If they can’t agree, she added, she would decide for them.
The SEC has twice interviewed Musk in connection with the Twitter probe. The first session was cut short because Musk’s lawyers disputed the investigators’ authority to ask questions about the Twitter deal, according to court filings. Musk’s legal team consented to another interview after the commission formally broadened the scope of its investigation.
Musk is still taking an aggressive legal stance to try to hold back the SEC. On Thursday, his lawyers made constitutional arguments against the agency’s ability to issue subpoenas.
The probe centers on how Musk in April 2022 disclosed his buying spree in Twitter shares. Investors who purchase more than 5% of a company’s stock have to promptly report their stake. The disclosure warns the market that a significant investor could seek control or influence over the company.
Musk initially reported being a passive shareholder who didn’t plan to take over Twitter or influence it. The next day, he submitted another form that showed deeper involvement with the company, including an offer he received to join its board of directors.
A week later, Musk offered to buy Twitter for $44 billion. The deal closed in October 2022. Musk renamed the company as X in July 2023, saying it was part of a plan to turn the website into an “everything app” that would provide audio, video, messaging and payment features.
Musk and the SEC have dueled on and off since 2018, when the agency charged him with defrauding investors by tweeting about his plan to take Tesla private. Musk settled the civil case by paying a $20 million fine, giving up his role as Tesla’s chairman, and agreeing to have some of his tweets about Tesla precleared by company lawyers.
He was scheduled to provide testimony for a third time in connection with the Twitter probe on Sept. 15 but didn’t show up, regulators said. The agency later offered to meet at a location closer to Musk’s Texas home, but the agency’s efforts “were met with Musk’s blanket refusal to appear for testimony,” the SEC wrote.
The Wall Street Journal reported in May 2022 that securities regulators were investigating Musk’s late disclosure of his stake.
His latest court battle with securities regulators opens a rare window into how SEC investigations work. The SEC has sought copies of every communication Musk had with Twitter from January to April 2022 and “full forensic images” of all devices Musk used to communicate with the company or about his share purchases. Musk says he has handed over hundreds of documents.
Musk says the SEC has issued “dozens upon dozens of subpoenas” to him or companies such as Tesla and SpaceX, according to a recent court filing. The probe into his purchases of Twitter stock involved 32 subpoenas and three requests for Musk to testify, his lawyers wrote in filings to the court.
Most people and entities facing SEC investigations comply with the agency’s demands for information. But the SEC’s subpoenas aren’t self-enforcing. When the occasional investigative target refuses to comply, the SEC needs a judge to compel their cooperation.
Several federal investigations are under way into Musk’s actions apart from his Twitter takeover. Manhattan federal prosecutors and the SEC are looking into whether Tesla company funds were used on a secret project that had been described internally as a house for Musk, who is chief executive of the electric-vehicle manufacturer, The Wall Street Journal reported in August, citing people familiar with the matter.
The Justice Department and SEC have also each opened an investigation into whether Tesla misled customers and investors about the performance of its advanced driver-assistance system known as Autopilot. Tesla this week said it would recall more than two million vehicles over government contentions that drivers can misuse Autopilot.