Tesla, Inc. (TSLA.US) CEO Elon Musk challenges the legality of SEC regulation, claiming that the 5% share disclosure rule violates the U.S. Constitution.

Since the 1960s, US securities laws have required that if an investor holds more than 5% of a listed company's shares and has intentions of acquisition or control, they must disclose relevant information to regulatory authorities within a specified period. Every year, the US Securities and Exchange Commission (SEC) receives thousands of such disclosure filings. However, Tesla, Inc. (TSLA.US) CEO Musk's legal team has raised fundamental questions about this system. According to a legal memorandum submitted to the Washington, D.C. federal court on Wednesday, Musk's side not only believes that the above 5% shareholding disclosure requirement is unconstitutional, but also further asserts that the SEC's own institutional structure does not comply with the US Constitution. Musk is currently defending against a charge from the SEC. The regulatory agency accuses Musk of failing to submit ownership disclosure filings on time during a major purchase of Twitter (later renamed X) stock in early 2022. The SEC stated that as of March 14, 2022, Musk held over 5% of Twitter shares and should have disclosed by March 24 at the latest under the applicable "13D rules", but the actual filing date was April 4. (The "13D rule" stipulates that investors must disclose relevant information to regulatory authorities within a short period when holding over 5% of a listed company's shares and having control intentions) SEC believes the case is clear in fact and responsibility. In a motion filed in August last year, the regulatory agency described this as a case of "direct, strict liability" for disclosure violations and requested the court to rule directly on Musk's liability without the need for a trial or further fact-finding. SEC requested Musk to return hundreds of millions of dollars in trading profits and pay corresponding fines. In response, Musk stated in the latest filing that the delayed disclosure was due to "innocent mistakes" by his asset manager and broker. They mistakenly believed the deadline was the end of the year, not the 10-day deadline as stipulated, and completed the disclosure as soon as they realized the error. Furthermore, Musk's lawyers have raised a constitutional challenge to the 13D rules. They point out that disclosure of ownership information within a shorter period is only required when investors are deemed to be "seeking company control", while passive investors have a more lenient reporting deadline. This distinction is considered to violate the First Amendment of the US Constitution because it "forces investors to disclose information based on their thoughts and subjective intentions". Additionally, the legal team further noted that in light of recent Supreme Court rulings granting the President the power to dismiss certain heads of independent regulatory agencies, the SEC's long-standing self-perceived "independent operation" governance structure itself lacks a constitutional basis. Therefore, enforcement cases initiated under this "protected" old system should be outright rejected. At the very least, Musk's side believes that he should have the right to interrogate the regulatory agency about the SEC's three-year investigation process before the court makes a ruling. An SEC spokesperson declined to comment on Musk's constitutional claims.