The Securities and Exchange Commission is investigating Elon Musk’s failure to disclose his massive March Twitter share purchase in a timely fashion, according to a report by the Wall Street Journal. The richest man in the universe took too long to file the required public form while in the process of buying up 9.2% of Twitter’s stock and becoming the company’s largest shareholder.
The CEO of Tesla, founder of SpaceX, etc…, has faced scrutiny, a lawsuit, and fines from the SEC before. Usually, though, the problem is his propensity to overshare his thoughts regarding the publicly traded companies he heads (i.e. hitting that tweet button). This time, the agency is reportedly looking into him for holding back.
Through section 13(d) of the 1934 SEC act, the commission mandates disclosure of stock purchases totaling more than 5% of a company’s shares within 10 days. Musk crossed the 5% threshold on March 14, and then continued purchasing additional shares after March 24 until he hit 9.2%. Based on the SEC rules, Musk should’ve disclosed his initial >5% purchase by March 24, however he didn’t alert the public about it until April 4.
The SEC rule is meant to protect and inform other shareholders when a large investor is seeking company control, so that they can make informed decisions. Twitter’s stock prices jumped up by about 27% when Musk finally did file his SEC paperwork, meaning he probably saved himself a lot of money by not announcing the buy-up as it was happening.
An accounting professor at the University of Pennsylvania, Daniel Taylor, told the WSJ that Musk might’ve saved more that $US143 ($199) million, based on the high $US49.97 ($69) share closing price on April 4, the day of disclosure. But what’s a measly $US143 ($199) million saved compared with the $US44 ($61) billion complete purchase offer Musk put up a week later, in his bid to buy Twitter and take it private?
One Twitter shareholder, Marc Rasella, already filed an April 12 lawsuit against Musk for failing to disclose his stock purchase quickly enough. In the suit, Rasella claims he lost money by selling off stock between March 24 and April 4, when a Musk disclosure would’ve boosted share prices.
Musk’s history with the SEC includes a 2018 lawsuit over tweets in which the Tesla CEO threatened to take the electric car manufacturer private at $US420 ($583)/share (lol?). That lawsuit ended in a $US40 ($56) million settlement that mandated Telsa lawyers had to sign off on all of Musk’s tweet’s regarding the company. In 2020 and 2021 he faced further scrutiny for continuing to blast off wildly irresponsible tweets anyway.
Just because the SEC is investigating, doesn’t mean they’ll necessarily take formal, legal action against Musk (this time). And, even if they did, it’s unlikely that that alone would derail the billionaire’s in-progress Twitter acquisition as the company’s board has already approved it. Granted, Musk might still manage to screw up the purchase well enough, all on his own.