Twitter Investment Could Get Elon Musk in More Trouble with SEC
It’s always something with Elon Musk, isn’t it? Once heralded as a visionary innovator, the CEO of Tesla Inc. and SpaceX now appears more interested in burnishing a reputation as a social provocateur. As his personal fortune has grown, the South African-born entrepreneur has seemingly become better known for his headline-grabbing public behavior and controversial posts on social media.
One area in which the notoriously erratic automotive executive has displayed striking consistency, however, is Musk’s disregard for U.S. securities law and disclosure requirements. His escapades with social media platform Twitter in the last week illustrated his commitment to the bit.
Musk revealed on April 4 via a regulatory filing that he had purchased more than 9% of Twitter’s stock for roughly $3 billion, making him the company’s largest shareholder. By law, he was supposed to disclose his position in the company within 10 days of amassing at least 5% of the company’s total equity. The trade that put Musk over that threshold occurred on March 14, meaning that he filed the requisite disclosure 11 days late.
As his April 4 disclosure would imply, Musk continued buying stock in Twitter after he reached the 5% benchmark. By the time of the filing, Musk had acquired another 4% of Twitter’s total shares. When Musk finally did disclose his position in Twitter, the price of the stock climbed nearly 30%, of course. All in all, that means Musk earned upwards of $160 million by concealing his investment beyond the deadline, according to one estimate provided to the Washington Post.
As if the disclosure delay wasn’t shady enough, Musk also claimed in one filing to be a “passive investor” in Twitter. If Musk amassed his position in Twitter with the intent of taking a decisive role in the company’s management, he might have misled the Securities and Exchange Commission in his filing. The fact that Musk accepted a seat on Twitter’s board of directors in the immediate aftermath of disclosing his stake in the company would lend credence to the idea his intentions weren’t passive at all.
Musk subsequently refiled as an active investor after being named to Twitter’s board. In yet another strange turn, though, Twitter CEO Parag Agrawal announced Sunday night that Musk would not become one of the company’s directors. Since Musk won’t have a spot on the board, he also won’t have to adhere to a cap of 14.9% on his ownership stake – raising concerns he might try to take over the company. And you’ll never guess what line of business Musk has recently discussed entering.
So where does that leave us, besides increasingly bored by Musk’s antics? The SEC may try to make an example out of the one-time Saturday Night Live host. The shenanigans with the Twitter stock provide a fresh example – albeit an extreme one – of how wealthy investors can profit unduly using the grace period for disclosing major equity positions in companies. The timing may be ideal for SEC Chair Gary Gensler, who recently proposed cutting the filing deadline for beneficial ownership transactions from 10 days to five.
Bear in mind, though, that the agency has already come after Musk once in 2018. It cost him $20 million and his chairmanship of Tesla. That didn’t seem to affect his ability to enrich himself or encourage him to comply with the law. For a person who supposedly has hundreds of billions of dollars in the bank, it would likely take an astronomical fine to convince Musk to see the error of his ways. In the end, he might view whatever price he pays as an acceptable cost for trolling securities regulators.
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