Stuart Varney, Susan Li and Bahnsen Group Managing Partner David Bahnsen discuss how Twitter’s announcement that Tesla and SpaceX founder Elon Musk will join its board of directors is impacting the stock market.
Elon Musk may have just picked up another battle with the Securities and Exchange Commission, setting up a potential showdown over how he disclosed his investment in Twitter.
The Tesla CEO announced Monday that he had acquired a 9.2% stake in Twitter — making it its largest shareholder — in an SEC filing that investors must file if they own more than 5% of a company own. The March 14 filing revealed that Musk bought about 73.5 million shares for about $2.9 billion.
But security law experts say the filing came days later than it should have, because the SEC requires anyone who acquires more than 5% of a company’s common stock to disclose their holdings within 10 calendar days.
Musk appears to have waited 21 days after March 14 to submit the form. A spokesman for Musk did not immediately respond to a request for comment.
Tesla CEO Elon Musk attends the opening of Tesla’s Berlin Brandenburg plant in Grünheide on Tuesday, March 22, 2022. (Patrick Pleul/Pool via AP / AP Newsroom)
“It’s confusing,” Marc Steinberg, a law professor at Southern Methodist University School of Law, told FOX Business. “He obviously has very good legal counsel, particularly regarding filing a form with the SEC and when to file it.”
ELON MUSK ACQUIRES STAKE IN TWITTER AFTER REVIEWING HIS APPROACH TO ‘FREE SPEECH’
Additionally, the document Musk filed with the SEC — Form 13G — indicates that he intended to be a passive investor and not have a major role in the company. These forms require the shareholder to include certification that they did not purchase the stock to influence or control the company. Musk did not include this statement in his form; he wrote “not applicable”.
Twitter’s announcement Tuesday that Musk would join the board after “talks for the past few weeks” could further complicate matters. Musk indicated that he hopes to “improve significantly” the company in the coming months; his term expires in 2024.
Shareholders hoping to hold a directorship or otherwise make changes to the company must submit a longer, more detailed form called a 13D, usually within 10 days of purchasing a 5% or more interest.
“[Musk] Being a nominee director is not a passive investor,” Steinberg, a former enforcement attorney with the SEC, said. “I think there’s quite a consensus that a director has the ability to influence the policies and practices of the organization, and that person is not a passive investor.”
“We also know from Elon that one of his favorite things to do is troll the SEC. I suspect he was intentionally vague.”
It’s likely that the SEC will probe Musk when exactly he hit the 5% stock threshold that requires shareholders to report their holdings, according to Michael Dambra, an associate professor of accounting and law at the University of Buffalo.
If the SEC finds that Musk violated the disclosure rule, he could be fined, which is historically quite small, around $100,000. A fine of that magnitude would be a slap in the wrist for Musk, who is the richest person in the world with a net worth of $288 billion, according to the Bloomberg Billionaire Index.
“We also know from Elon that one of his favorite things to do is troll the SEC,” he said. “My guess is that maybe he was being vague on purpose.”
The SEC seal hangs on the wall of SEC headquarters (Reuters/Jonathan Ernst / Reuters Photos)
Dambra said he believes the SEC will also be interested in Musk’s intent with the 9.2% investment given the immediate announcement that he will join the board. It is unclear what Musk’s intentions are with the purchase or the seat on the board.
In recent months, the SpaceX founder has launched a spate of criticism against Twitter, which he accuses of stifling freedom of expression. In a tweet on Tuesday, Musk indicated that he hopes to make “substantial improvements” to Twitter in the coming months following his appointment to the company’s board of directors, a term that expires in 2024.
“Ultimately interested here, what are the consequences?” said Dambra. “As you can see, historical disclosure penalties have typically been small, around $100,000. They are pretty small. Does that matter to Elon compared to his ability to troll? Probably not.”
This wouldn’t be Musk’s first clash with the SEC.
In September 2018, the SEC accused Musk of being “false and misleading” to investors after he abruptly tweeted in August that he was considering taking Tesla private for $420 per share and that funding had already been secured (the Tesla -Shares skyrocketed after initial tweet, up more than 10%). The deal Musk was referring to never materialized.
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Musk and Tesla eventually agreed to a settlement with the government that required both to pay $20 million in fines to the SEC. Musk was also forced to step down from his role as the company’s chief executive officer, while Tesla was forced to put controls in place to monitor Musk’s online communications.
Last month, Musk asked a federal judge to overturn the settlement he had reached, arguing that the SEC was abusing its social media policy to continually investigate his statements. The SEC has denied this allegation.