Elon Musk and the SEC are on a collision course again

The Securities and Exchange Commission has been investigating Musk’s late disclosure of his purchases of Twitter stock before he took over the company. Excerpts of Musk’s testimony provided to the SEC, which came to light last month through a separate lawsuit, suggest Musk and his adviser brushed off compliance with a rule that required him to reveal his ownership once it passed 5% of Twitter’s shares.

Musk and his closest adviser on the trades didn’t seek legal advice, for instance, about how to follow the rule while building his stake despite the adviser telling the bank that they had, according to a lawsuit in Manhattan federal court brought by the Oklahoma Firefighters Pension and Retirement System against Musk and others. Musk waited to disclose his stake until he owned more than 9% and had an offer to join its board, according to court filings.

As part of seeking evidence for their lawsuit, the firefighters’ pension fund obtained transcripts of testimony that Musk and his adviser, Jared Birchall, gave to the SEC. The firefighters included parts of those transcripts in a revised complaint against Musk and the other defendants that they filed in late May.

The testimony could support a claim that Musk violated the rule so he could keep his trading secret and prevent Twitter’s share price from rising while he was buying it, lawyers said. The SEC has said in court papers that it is investigating whether Musk committed civil fraud by delaying his disclosure or misleading the market about his plans.

Musk’s attorneys haven’t yet responded in court to the revised complaint. They earlier disputed the firefighters’ allegations. Musk’s lawyers didn’t respond to requests for comment for this article.

Musk in 2018 settled SEC fraud claims over a message on Twitter that said he had “funding secured" to take Tesla private, a deal that never happened. When they sued him, regulators asked a court to bar Musk from serving as an officer or director of a public company. Musk avoided the ban by settling the SEC’s lawsuit. He agreed to step down as Tesla’s chairman and paid a $20 million fine.

Musk tried, unsuccessfully, to back out of the earlier settlement agreement. His lawyers have claimed that regulators are obsessed with trying to punish the billionaire.

The SEC hasn’t filed any enforcement action so far against Musk over his Twitter trading. If the SEC makes a formal complaint against Musk for fraud, regulators are likely to again ask a court to bar him from serving as an officer or director of a public company, former officials said, exposing him to the possibility of removal from Tesla.

“They sued him previously, and I think they are disappointed with the outcome of that settlement and how he has responded to it," said Marc Fagel, who previously ran the SEC’s San Francisco office. “They are putting in the extra work to see if they can get a stronger case here."

The firefighters’ lawsuit against Musk seeks monetary damages. Musk’s lawyers have said the firefighters’ arguments don’t support a fraud claim. Musk acquired Twitter in late 2022 and later renamed the company X Corp.

In April 2022, Musk disclosed his ownership in Twitter 11 days after the regulatory deadline. He had discussed joining Twitter’s board in late March, and the company offered to put him on its board of directors on April 3, according to court filings, where he could influence its business strategy and approach to content moderation.

Musk said he was generally aware that investors need to disclose ownership in a public company when their stake exceeds 5%, according to excerpts of his testimony revealed in the firefighters’ lawsuit.

Musk likely saved more than $143 million by not reporting his trading on time, The Wall Street Journal reported in May 2022. Investors who sold Twitter shares during 11 days when Musk was out of compliance with the rule were defrauded, the firefighters’ lawsuit says.

Scheme-liability cases often aren’t successful in litigation, Fagel said. Courts prefer to pin fraud cases on false statements, he said, adding that he is skeptical about the SEC’s chances if it sues and alleges fraud.

“They could have an uphill battle, as even a deliberate plan to evade a mandatory disclosure does not necessarily convert a regulatory violation into fraud," he said.

Musk has to appear one more time before the SEC to answer questions about his Twitter trading, a federal judge ruled last month. Musk had asked the court to quash the subpoena.

Regulators could potentially tie a fraud case to the claim that Musk intended to deceive the market, said James Park, an expert on securities law at the University of California, Los Angeles.

“It’s a little bit more complicated than if he just flat-out lied," he said, referring to Musk’s statements at the time. “We don’t have that in this case, but we do have something similar and almost as good."

Write to Dave Michaels at dave.michaels@wsj.com and Alexa Corse at alexa.corse@wsj.com