Elon Musk Put Under SEC Investigation Over Twitter Deal Details

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Billionaire Elon Musk is reportedly under federal investigation in relation to his investment in Twitter, which he’s since outlined a plan to buy — although that deal hasn’t gone through, and he doesn’t own Twitter yet. Federal authorities including the Securities and Exchange Commission (SEC) and Federal Trade Commission (FTC) are looking into various elements of Musk’s spending, The Wall Street Journal explains.

As summarized by the Journal, the SEC “is probing Mr. Musk’s tardy submission of a public form that investors must file when they buy more than 5% of a company’s shares.” Disclosing such a purchase allows current and potential investors to see possibly looming control or influence of whatever company in which they’re interested. Daniel Taylor, who works as a University of Pennsylvania accounting professor, estimated that Musk saved big by waiting to publicly disclose his large stake in Twitter, which he procured before revealing his hopes to purchase the company. If Musk’s large financial stake in the platform had been public knowledge, then interest in the site could have spiked — along with the prices for the shares Musk later bought. (He didn’t procure his stake in Twitter all at once.) Taylor said Musk likely saved upwards of $143 million by delaying his required disclosure.

Musk’s stake in Twitter surpassed the point at which he was supposed to file that form with the SEC on March 14. Investors subject to the form’s requirements have ten days to submit the document — and Musk apparently didn’t file the required form until April 4. And it’s after the point when he was originally supposed to submit the form that he purchased a lot more stock, adding roughly $513 million worth of the company’s shares to his holdings in the days following March 24. “The case is easy. It’s straightforward. But whether they’re going to pick that battle with Elon is another question,” Dr. Taylor remarked. Besides the fact that he purchased large amounts of stock in Twitter after he was supposed to have revealed his already large stake, Musk also indicated on his eventual initial disclosure that he was a passive shareholder, meaning he — supposedly — harbored no ambitions to either control or influence the company. Predictably, “SEC investigators, who have sought documents from Twitter, are probing whether Mr. Musk’s initial disclosure should have revealed more about his plans for the investment,” as the Journal summarized based on revelations from sources.

In addition, FTC investigators are looking into the possibility Musk violated legal requirements demanding antitrust-enforcement agencies be informed of certain large transactions. The distinction between being a supposedly passive investor — or not — is important here, too: those whose purchases of an individual company’s shares surpass what’s generally $92 million while holding existing assets above $20 million have to inform authorities. But, passive investors with less than 10 percent of a company’s shares who plan to remain passive aren’t subject to the requirements for reports to antitrust authorities, it seems. Check out more at this link.