SEC Charges Elon Musk with Violating Beneficial Ownership Reporting Requirements Related to Twitter

SEC Charges Elon Musk for Violating the Beneficial Ownership Reporting Requirements of the Federal Securities Laws

The Securities and Exchange Commission announced today that it has filed an action against Elon Musk alleging that he failed to timely file a beneficial ownership report with the Commission after acquiring beneficial ownership of more than five percent of the outstanding shares of Twitter, Inc. common stock, in violation of the beneficial ownership reporting requirements under the Securities Exchange Act of 1934 (“Exchange Act”). According to the SEC’s complaint, Musk saved at least $150 million at the expense of Twitter shareholders by failing to timely file the beneficial ownership report.[…]

According to the SEC’s complaint, after Musk failed to timely file a beneficial ownership report by March 24, 2022, he purchased more than $500 million worth of Twitter common stock between March 25, 2022 and April 1, 2022. As alleged, because Musk failed to timely file a beneficial ownership report with the SEC, he was able to make these purchases of Twitter common stock at artificially low prices from the unsuspecting public, who had not yet priced in the undisclosed material information of Musk’s beneficial ownership of more than five percent of Twitter common stock and investment purpose. According to the SEC’s complaint, Musk underpaid by at least $150 million for his purchases of Twitter common stock in this period. The complaint further alleges that, due to Musk’s failure to timely file a beneficial ownership report with the SEC, investors that sold Twitter common stock between March 25, 2022 and April 1, 2022 did so at artificially low prices, thereby suffering substantial economic harm.

SEC Charges BMO Capital Markets with Failing to Supervise Agency Bond Desk

The Securities and Exchange Commission today charged registered broker-dealer BMO Capital Markets Corp. with failing to supervise employees who, from December 2020 until May 2023, sold mortgage-backed bonds using offering sheets and bond metrics that were misleading and did not accurately describe the characteristics of the collateral backing the bonds. To settle the charges, BMO agreed to pay more than $40 million in disgorgement, prejudgment interest, and a civil penalty.

According to the SEC’s order, BMO representatives structured mixed collateral bonds backed by pools of residential mortgages, using a small sliver of higher-interest mortgages, in a way that caused the systems of third-party data providers to generate inaccurate information about the bonds’ overall composition. BMO then sent misleading metrics about the bonds to customers, even though its representatives should have known they were misleading. In about two and a half years, BMO sold $3 billion worth of these bonds, which are known as Agency CMO Bonds, and the SEC’s order found that the broker-dealer’s supervisory policies and procedures did not include guidance concerning the structure and sale of these bonds. BMO also did not have a process for reviewing the type of information firm representatives shared with customers about the bonds or a process for reviewing bond structures against marketing communications.

Maybe ESG Is Illegal Now

The way US federal law works is that there are only a few federal judges in the Fort Worth Division of the US District Court for the Northern District of Texas, and they are extremely conservative. The best-known is Judge Reed O’Connor, “who critics say has been a subject of ‘forum shopping’ by conservative plaintiffs seeking a sympathetic court in challenges to federal policies.” So if you have a novel, conservative legal theory, what you do is you file a lawsuit in the Fort Worth federal courthouse, and then you probably get assigned to Judge O’Connor, and he probably endorses your novel legal theory. Then maybe the other side appeals, to the US Court of Appeals for the Fifth Circuit and perhaps eventually to the US Supreme Court, but these days those courts are also quite receptive to novel, conservative legal theories, so your chances are good.

Environmental, social and governance (ESG) investing is quite controversial now, with a lot of conservative critics. And so Judge O’Connor was naturally asked to declare that it is a violation of fiduciary duty for an investment manager to consider ESG factors in making investment decisions, and last Friday he did that….

Intesa Sanpaolo, Largest Italian Bank by Total Assets, Buys 11 BTC for Over $1M

Bitcoin (BTC), continues to get further entrenched into the traditional finance system. Italy’s largest bank by assets, Intesa Sanpaolo, has bought 11 BTC for over $1 million, according to a Reuters report.

Reuters saw an internal message that said, “As of today, Jan. 13, 2025, Intesa Sanpaolo owns 11 bitcoins”.

Intesa Sanpaolo currently has a market capitalization of roughly $73 billion, putting it at 247 out of the top 250 most valuable companies. The share price is slightly higher today, up over 2%.

Trump Must Order Agencies to Audit Claims of Statutory Authority

President-elect Donald Trump, who has pledged to issue a slew of executive orders once he takes office, should issue one requiring every agency head conduct a comprehensive accountability audit to review interpretive compliance with constitutional and statutory limits on agency authority.

These audits would emphasize aligning agency actions with evolving US Supreme Court precedents that redefine limits of their authority. This effect would be similar to a corporate audit that considers individual liabilities, including assessing risks when a major new decision is announced that makes the corporation vulnerable to litigation and resulting adverse judgments.

The need for such audits comes as federal agencies continue to operate without considering a series of recent, revolutionary high court decisions that have fundamentally changed how the legitimacy of agency actions is evaluated.

The Securities and Exchange Commission, for example, has imposed its authority questionably to bring enforcement actions against cryptocurrencies and mandate climate and other environmental, social, and governance disclosures, due to ill-defined statues from Congress. 

‘Be Prepared and Practice’: Paul Hastings’ Michelle Reed Breaks Down Firm’s First SEC Cybersecurity Incident Disclosure Report

—The number of cybersecurity incidents disclosed by public companies has increased 60% since the SEC rules went into effect.

Reed: The rule itself is clearly having an impact and forcing public companies to consider whether a cyber incident has a material impact on a company. And it’s giving insight, I think, into the market of incidents that otherwise might not be disclosed because they might not impact personal information, but they could be a cyber incident that impacts other aspects of the business. … When you go through these incidents, which we do on a regular basis, it’s really hard to determine what the scope is quickly. But I think companies are concerned about the SEC criticizing them for non-disclosure, and so they’re jumping to disclosing.[…]

—Fewer than 10% of the disclosed incidents included a description of the material impact to the company.

Reed: This is an interesting statistic, because only material incidents are supposed to be disclosed … The reason this is challenging is because that assessment of materiality is, by its very nature, a difficult one to make. You have qualitative considerations and quantitative considerations. And so I think the statistic reflects [that] companies are really grappling with when to disclose on the qualitative side, as most didn’t have quantitative material impact. Source:

SEC Charges Advisory Firm Navy Capital With Misrepresenting Its Anti-Money Laundering Procedures to Investors

The Securities and Exchange Commission today charged Connecticut-based investment adviser Navy Capital Green Management, LLC with making misrepresentations related to its anti-money laundering (AML) procedures and for compliance failures. Navy Capital agreed to settle the SEC’s charges and pay a $150,000 civil penalty.

The SEC’s order finds that, from at least October 2018 until January 2022, Navy Capital stated in offering and other documents provided to prospective and existing private fund investors that the firm was voluntarily complying with AML due diligence laws despite those laws not applying to investment advisers, including by conducting specific types of AML due diligence on prospective investors and conducting ongoing AML due diligence monitoring on existing investors. According to the order, Navy Capital’s private fund investors included multiple foreign-based entities with opaque beneficial ownership and sources of wealth. The order finds that Navy Capital did not, in fact, always conduct the AML due diligence as described, including with respect to an entity owned by an individual publicly reported to have suspected connections to money laundering activities. As noted in the order, a foreign court eventually froze the assets of one of Navy Capital’s private funds because it held funds from that investor. The SEC’s order further finds that Navy Capital failed to adopt and implement written policies and procedures reasonably designed to ensure the accuracy of offering and other documents provided to prospective and existing investors.

Record-Setting Settlements in Two SPAC-Related Securities Suits

After the 2021 peak of the SPAC IPO frenzy, many SPACs wound up liquidating, while another significant tranche of the SPACs (or the SPACs post-merger successor companies) wound up in litigation. The post-frenzy glut of SPAC-related lawsuits has since been making its way through the courts ever since, and some have made it to the settlement stage. In recent days, the parties to two of these SPAC-related lawsuits have reached noteworthy settlements. As discussed below, the two settlements – the Alta Mesa SPAC-related lawsuit settled for $126.3 million and the Grab Holdings SPAC-related lawsuit settled for $80 million – are among the largest ever SPAC-related lawsuit settlements and could potentially set standards for future SPAC lawsuit settlements. The two settlements are subject to court approval.