Even Trump may not be able to save Elon Musk from his old tweets

Back in December, Elon Musk accused the Securities and Exchange Commission (SEC) of launching a purely politically motivated probe into his Twitter purchase. In a letter from his lawyer, Alex Spiro, Musk alleged that the SEC gave him 48 hours to accept a settlement or face fraud charges. Musk refused to pay the fine, demanding to know "who directed these actions," suspecting either former SEC Chair Gary Gensler or Joe Biden's White House. Once the SEC lawsuit was filed in January, Musk's condemnation of the settlement was echoed in his claims that the SEC was "totally broken." These comments seemed to further his feud with the agency following a contentious 2018 Tesla settlement over Musk's tweets that resulted in the Supreme Court declining to hear Musk's arguments against his tweets being monitored by the SEC. But after Donald Trump issued a February executive order declaring sweeping powers over independent agencies—including the SEC, which was accused of launching politically motivated investigations—it appeared that Musk might instead have been setting up the narrative to possibly get the probe squashed. And while that still appears to be a possibility, it now seems that a persistent lawsuit raised by Twitter investors that's linked to the SEC probe may end up being the hurdle that possibly blocks Musk's efforts to evade the SEC's investigation. And once again, it's perhaps Musk's tweets that may force the billionaire to potentially end up paying fines to settle charges—recently deemed plausibly showing intent to deceive. On Friday, US District Judge Andrew L. Carter, Jr., gave Twitter investors a big win by mostly denying Musk's motion to dismiss. The judge agreed that it seemed plausible that Musk and other defendants concocted a scheme to spend "over $2.6 billion to secretly purchase over 70 million shares" at an artificially lower price. Plaintiffs had argued the scheme saved Musk "over $200 million" while allegedly harming investors whose shares could have sold at higher prices during the time the supposed scheme was in action. At the core of the lawsuit is a claim that Musk "deliberately" or "recklessly" delayed filing notices that would have alerted investors about his plans to take over Twitter before he purchased a large stake in the company. Part of the alleged deceptions included tweets where Musk appears to mislead the public about his intentions to buy Twitter. Two of those tweets, Carter wrote, "warrant further discussion." In one, Musk responds to a user urging him to "just buy Twitter" and "change the bird logo to a doge" icon representing the cryptocurrency Dogecoin. That tweet can be reasonably read as "a statement meant to misdirect the public to think that buying Twitter was just a fantasy," Carter concluded, since Musk perhaps conveniently left out "critical information that he already owned nearly 10 percent of the company." In the other tweet, Musk responded to a user asking if he would consider building his own social media platform, writing, "Am giving serious thought to this." This can be read "as an affirmative representation that Musk had no interest in Twitter, but was rather building out a rival platform," Carter wrote. Musk had hoped to convince the court that these tweets were simply "teasing" and that his allegedly deceptive SEC filings were a "mistake." But Carter suggested that Twitter investors' allegations that the tweets were posted to "deceive the public about, or distract the public from looking further into" the secret trading scheme is "at least as compelling" as Musk's claims of "nonfraudulent intent." And "more compelling" than Musk's claims he made a "mistake," Carter wrote, were investors' claims that Musk and other defendants intentionally delayed filing forms confirming Musk's intent to buy Twitter in order to acquire millions of shares at a lower price. Investors met their burden that the delay sent a "false pricing signal to the market," leading Carter to conclude "that the facts surrounding the trading strategy evince a deceptive act in furtherance of a scheme to defraud." A loss in the investors' and SEC's suits could force Musk to disgorge any ill-gotten gains from the alleged scheme, estimated at $150 million, as well as potential civil penalties. The SEC and Musk's X (formerly Twitter) did not respond to Ars' request to comment. Investors' lawyers declined to comment on the ongoing litigation.

SEC purge may slow down probes

Under the Biden administration, the SEC alleged that "Musk’s violation resulted in substantial economic harm to investors selling Twitter common stock." For the lead plaintiffs in the investors' suit, the Oklahoma Firefighters Pension and Retirement System, the scheme allegedly robbed retirees of gains used to sustain their quality of life at a particularly vulnerable time. Musk has continued to argue that his alleged $200 million in savings from the scheme was minimal compared to his $44 billion purchase price. But the alleged gains represent about two-thirds of the $290 million price the billionaire paid to support Trump's election, which won Musk a senior advisor position in the Trump administration, CNBC reported. So it's seemingly not an insignificant amount of money in the grand scheme. Likely bending to Musk's influence, one of Trump's earliest moves after taking office, CNBC reported, was reversing a 15-year-old policy allowing the SEC director of enforcement to launch probes like the one Musk is currently battling. It allowed the Tesla probe, for example, to be launched just seven days after Musk's allegedly problematic tweets, the SEC boasted in a 2020 press release. Now, after Trump's rule change, investigations must be approved by a vote of SEC commissioners. That will likely slow down probes that the SEC had previously promised years ago would only speed up over time in order to more swiftly protect investors.

SEC expected to reduce corporate fines

For Musk, the SEC has long been a thorn in his side. At least two top officials (1, 2) cited the Tesla settlement as a career highlight, with the agency seeming especially proud of thinking "creatively about appropriate remedies," the 2020 press release said. Monitoring Musk's tweets, the SEC said, blocked "potential harm to investors" and put control over Musk's tweets into the SEC's hands. The SEC's enforcement division has drastically fewer resources at its disposal to pursue such creative remedies now. But even while Musk's Department of Government Efficiency (DOGE) is currently overhauling the SEC, and Trump is threatening to tamp down on any investigations deemed politically motivated, the investors' suit perhaps shows how hard it will be for courts and officials to ignore the potential power of Musk's tweets deemed misleading to manipulate markets. With the lawsuits linked, it will be interesting to see how officials navigate the politics. During the prior administration, an SEC lawyer had accused Musk of using delay tactics and supposed gamesmanship that must cease for the case to proceed with urgency. And the current SEC, packed with officials seemingly ready to loosen regulation of tech companies, doesn't seem to think the case against Musk can be dropped, even as experts note that it's not the most egregious case of alleged fraud ever filed. Last week Reuters revealed that the SEC held a closed-door vote to decide if the lawsuit should even be filed, with four out of five commissioners agreeing to move forward with the probe. The sole stand-out, acting head of the SEC Mark Uyeda, could perhaps still hold sway over the probe, though. Following the vote, he apparently took the unusual step of asking enforcement staff—reportedly the hardest hit by DOGE cuts and buyouts—to sign pledges denying that the investigation had political motivations, Reuters reported. (Significant cuts in the enforcement and office of general counsel divisions are also expected to delay investigations and constrain litigation.) Under Uyeda, legal experts expect the SEC to reduce fines for infringing activity that companies have long protested as burdening the US economy after the prior regime's fines reached record highs. And incoming SEC Chair Paul Atkins has already praised DOGE's cuts, promising to cooperate with Musk's team and potentially personally warming to Trump's advisor. That could mean that Musk's rejection of the settlement last December, at the very least, may have spared him a higher fine, which was perhaps yet another effective delay tactic in an SEC lawsuit fixated on delay tactics.