Schedule 13D and 13G: Elon Musk Saga Ends, and SEC Clarifies Rules

Our Carter Ledyard team wrote a Client Advisory, led by Guy Ben-Ami, with the help of Steven J. Glusband and Ashlee M. Davis, on Recent SEC enforcement activity and new interpretive guidance highlight the agency’s continued emphasis on beneficial ownership reporting under Schedules 13D and 13G.

We previously discussed the amendments to Sections 13D and 13G of the Securities Exchange Act of 1934’s beneficial ownership reporting rules, using Elon Musk’s acquisition of Twitter (now X) as an illustration of the shorter reporting deadlines imposed by the Securities and Exchange Commission (“SEC”).

The SEC’s enforcement action arising from Musk’s 2022 Twitter purchases has now been settled. Although Musk’s conduct occurred before the amended rules became effective, this matter underscores the SEC’s continued focus on beneficial ownership reporting.

Key Developments Following Our 2024 Advisory:

January 2025: The SEC filed its enforcement action against the Elon Musk Revocable Trust (the “Trust”) alleging a failure to timely disclose crossing the 5% threshold. Under the rules at the time, Musk was required to report his 5% crossing within 10 days (by March 24, 2022). Instead, he kept purchasing shares quietly, allegedly saving an estimated $150 million before the public caught on and drove the stock price up.

May 2026: The parties settled. The Trust agreed to pay a $1.5 million civil penalty without admitting or denying the allegations.

July 8, 2026: Federal judge approves the settlement despite expressing “significant misgivings” about the “red flags” the accord raised.

July 9, 2026: The Division of Corporation Finance issued an updated Corporation Finance Interpretations (CFIs) providing additional guidance on beneficial ownership reporting.

Settlement:

The settlement provided that a revocable trust in Elon Musk’s name, rather than Musk himself, must pay a $1.5 million civil penalty. The SEC originally calculated that by delaying his Schedule 13D disclosure for 11 days, Mr. Musk purchased shares at artificially low prices and saved upwards of $150 million. The $1.5 million fine, while the largest penalty of its type in SEC history, surpassing a previous record of $950,000, represents 1% of those alleged savings. Musk was not required to give up (disgorge) any of the $150 million he allegedly saved. Criticism was also directed at the distinction between the Trust and Mr. Musk individually.

July 9 CFIs:

The July 9 updates directly tackle tactics used by activist investors to quietly amass influence.

The new guidance clarifies that if investors use derivatives or total return swaps (“TRS”) specifically to obscure voting influence or delay a public filing, it may trigger an immediate enforcement violation.

A person who simply enters into a TRS does not automatically mean he has beneficial ownership of the securities. Entry into a TRS, absent any arrangement that confers such power or rights outside of the terms of the TRS, is not, by itself, evidence of a plan or scheme to evade the reporting obligations, but if an investor uses a TRS as a means to direct the counterparty how to vote any equity securities used in the counterparty’s hedge or to pre-arrange the acquisition of such securities, the investor may be deemed a beneficial owner.

The SEC will look at whether the investor knew or was reckless in not knowing that use of the TRS would create a false appearance or illusion that the investor’s interest is economic alone. For example, entry into a TRS for the purpose or effect of indirectly acquiring the power to vote or a future right to acquire the securities may be viewed as part of a “plan or scheme to evade”.

The CFIs indicated that when an entity is formed to raise capital for a specific activism campaign, the identities of investors providing the acquisition financing must be disclosed under Item 3 of Schedule 13D.

The SEC clarified that when the reporting person is a partnership or other non-natural person, the disclosure required by Schedule 13D Items 2-6 applies both to the reporting entity itself and to the additional persons identified in the form.

In addition, the CFIs explained that investors contributing more than $500 to an entity formed to finance a specific proxy solicitation generally will be considered participants in that solicitation.

Under the current rules:

• An initial Schedule 13D generally must be filed within five business days after acquiring beneficial ownership of more than 5% of a covered class of equity securities.

• Material changes to the information previously reported on Schedule 13D generally must be disclosed within two business days after the material change

• Filing deadlines for Schedule 13G also have been accelerated for qualified institutional investors, exempt investors, and passive investors, with amendment deadlines likewise shortened.

• The SEC’s updated CFIs make it clear that determining beneficial ownership and reporting obligations remain a fact-intensive inquiry.

Practice Pointers for Investors:

Reevaluate your filing status regularly. An investor’s reporting obligations may change as investment objectives or interactions with the issuer evolve. A filing that was appropriate at the outset may no longer reflect the investor’s status.

Treat passive investor status as an ongoing assessment, instead of a one-time determination. Investors relying on Schedule 13G should periodically evaluate whether their conduct remains consistent with passive ownership. Communications with management, discussions regarding governance, or other efforts to influence corporate decision-making may necessitate a Schedule 13D filing.

Develop internal compliance procedures. Accelerated filing deadlines leave little room for error. Investors should implement systems to monitor beneficial ownership thresholds, material changes, and reporting deadlines.

Do not assume that penalties will be rare or will amount to a “Slap on the Wrist”: as the settlement shows, fines may be substantial, and disgorgement is always an option.

While the 2023 amendments have now been in effect for a while, their practical implications continue to evolve through SEC guidance and enforcement. Rather than viewing Schedules 13D and 13G as routine disclosure obligations, investors should treat beneficial ownership reporting as an ongoing compliance exercise that requires continuous evaluation of investment strategy, shareholder engagement, and evolving reporting obligations. As recent enforcement actions have demonstrated, timely and accurate disclosure remains central to the SEC’s commitment to market transparency.