Michaela Alvez
John Reed Stark, a former official with the U.S. Securities and Exchange Commission (SEC), has weighed in on the SEC’s lawsuit against X CEO Elon Musk, which accused him of failing to disclose his purchase of over 5% of Twitter’s shares in early 2022.
In a post on X, Stark expressed his agreement with Musk regarding the SEC’s civil enforcement action, referring to it as a “joke.” The ex-SEC official, who spent nearly two decades working in the SEC’s Enforcement Division, slammed the lawsuit.
Stark criticized the SEC’s 11-page complaint, describing it as “extraordinarily weak, lacking any sort of scheme or fraud.” He suggested that the lawsuit was a last-minute attempt by outgoing SEC Chair Gary Gensler to make headlines before his departure and to take a jab at President-elect Donald Trump. However, he said that, in the end, this move unfairly tarnishes the reputation of the SEC staff.
Stark further argued that the 13(d) filing requirement is not automatically triggered when someone acquires 5% of a public company’s stock.
Unlike the 10% threshold, which mandates a filing under strict liability, the 5% ownership threshold only necessitates a Form 13(d) filing if the acquisition “has the purpose or effect of changing or influencing the control of the issuer.” This distinction, according to Stark, emphasizes the need for additional intent or influence before the filing becomes mandatory.
He suggested that Musk could argue that, despite being informed of acquiring 5% of Twitter’s shares, he never intended to take control of the company at that point. Instead, Stark speculated that Musk’s objective may have been simply to secure a seat on Twitter’s board, with his goals likely evolving over time.
Additionally, Stark asserted that the X CEO could contend that filing a Form 13(d) would have been misleading, as he was unsure at the time whether he wanted to fully acquire Twitter.
Such a filing could have sparked a buying frenzy for Twitter’s stock, rapidly inflating the value of his 5% stake. Musk might assert that filing the form under these circumstances could have been interpreted as an attempt to manipulate the market, artificially driving up the value of his shares to profit from a quick sale.
Stark also slammed the media for overlooking a key detail, pointing out that while a 10% ownership stake triggers a mandatory filing, the requirement for a 5% ownership stake includes an important “intent” element. He noted that this crucial second prong — determining whether the acquisition was made with the purpose of influencing control of the company — is often misunderstood or ignored in media coverage.
The former SEC official shared findings from a recent analysis by the law firm White & Case, which examined SEC Enforcement actions concerning 13(d) filings. The study revealed that penalties for filing delays varied between $10,000 and $200,000, with delays ranging from 9 days to as long as 16 years.
The analysis highlighted only 28 cases involving 13(d) violations, and the firm speculated that very few, if any, of these instances involved a failure to report a 5% ownership without also suggesting some form of intentional misconduct. White & Case emphasized that the “intent” requirement, a crucial part of such cases, is often too subjective to reliably prove.
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Michaela has no crypto positions and does not hold any crypto assets. This article is provided for informational purposes only and should not be construed as financial advice. The Shib Magazine and The Shib Daily are the official media and publications of the Shiba Inu cryptocurrency project. Readers are encouraged to conduct their own research and consult with a qualified financial adviser before making any investment decisions.
