Legal: Judge rejects Musk's bid to dismiss SEC Twitter disclosure case

Elon Musk lost his bid to dodge SEC charges over his late Twitter stock disclosures, with a federal judge shutting down his constitutional attacks. 

A Washington federal court handed down the decision on February 3, rejecting Musk's effort to derail the Securities and Exchange Commission's lawsuit over his 2022 Twitter stock purchases. The case centers on one of the investment world's most basic rules: when you cross five percent ownership in a public company, you have 10 days to tell everyone about it. 

Musk apparently missed that deadline by quite a bit. 

The timeline is straightforward. In early 2022, Musk started buying Twitter shares through his wealth manager. By March 14, he owned more than five percent of the company. That triggered the disclosure requirement under Section 13(d) of the Securities Exchange Act. He should have filed by March 24 at the latest. 

Instead, he kept buying. And buying. Between March 14 and April 1, Musk scooped up millions more shares at prices between $38 and $40. During this time, he was already talking to Twitter board members about taking the company private. On March 27, he told one board member he owned at least seven percent and asked about a possible privatization. Four days later, he had similar conversations with Twitter's CEO and board chair. 

The SEC says those extra purchases while staying quiet cost other Twitter shareholders more than $150 million. When Musk finally filed his disclosure on April 4, the stock popped 27 percent in a single day. 

Rather than argue about what actually happened, Musk's lawyers went after the law itself. They claimed Section 13(d) violates the First Amendment by forcing investors to reveal their strategies. They said the rule is too vague because it doesn't specify calendar days versus business days. They argued the SEC was picking on Musk while letting others slide. And they challenged whether SEC commissioners have proper oversight from the president. 

Judge Sparkle Sooknanan wasn't buying any of it. On the First Amendment issue, she pointed out that securities disclosure has always gotten special treatment. The government has broad authority to require transparency in stock markets, and Section 13(d) serves important goals like preventing exactly what the SEC says happened here: someone quietly accumulating shares at low prices while planning a takeover. 

The vagueness argument went nowhere either. Even if there was confusion about calendar versus business days, Musk blew past both possible deadlines. 

As for selective enforcement, the judge noted that Musk couldn't point to anyone in a similar situation who got off easier. The SEC regularly pursues penalties for late Section 13(d) filings. What makes this case different is the dollar amount at stake, which tracks Musk's alleged profit from the delay. 

The constitutional challenge to SEC commissioner removal protections also failed. Musk couldn't show the rule actually hurt him in any concrete way. 

Now the case moves forward. Discovery will proceed, and the SEC will need to prove its allegations at trial. If it wins, Musk could face that $150 million disgorgement plus additional penalties and an injunction against future violations. 

For investment professionals managing large positions, the takeaway is straightforward: Section 13(d) disclosure requirements remain fully enforceable, and the courts aren't interested in constitutional workarounds.