Cost Benefit

Elon Musk faced questions from the SEC about his timing for disclosing his stake on Twitter

By Beatriz J. Ezell
April 4, the same day Musk initially revealed he had bought more than 9% stake in Twitter (TWTR) and become the company’s largest shareholder, the SEC sent him a letter asking why he appeared to have delayed disclosing his stake in an apparent violation of securities law.

In his letter to Musk, which emerged on Friday, the SEC asked him to “please indicate why the [initial disclosure] does not appear to have been made within the required 10 days” from the date on which he acquired a stake in the company greater than 5%.

Musk’s Twitter stake topped 5% on March 14, according to a filing, in which case public disclosure of that stake should have been made by March 24. Instead, Musk waited 21 days – and continued to amass stock in the company at an effective rate. discount to what the stock would have traded at had such an announcement been made.

Musk’s late disclosure saved the billionaire about $143 million by keeping the stock price lower than it could have been as he continued to buy shares, Daniel Taylor estimated. professor of accounting at the University of Pennsylvania.

“I think it could be laziness or the belief that the rules don’t apply,” Taylor told CNN Business earlier this month. “But if you look at when the SEC enforces a late filing, it’s relatively rare. From a cost-benefit perspective, it makes sense not to file. Even if the cost of a late filing is a fine of $100,000 or a multi-million dollar fine, why wouldn’t he [delay filing]?”

The SEC also questioned why Musk originally filed a disclosure aimed at passive investors who don’t plan to use their influence to make changes in a company. Musk had previously made several comments on Twitter suggesting he felt changes needed to be made to the platform.

“Your response should address, among other things, your recent public statements on the Twitter platform regarding Twitter…including statements asking whether Twitter (the issuer) strictly adheres to ‘free speech principles,'” the SEC said in its letter.

Musk and the SEC did not immediately respond to requests for comment. Twitter declined to comment.

The letter adds another complicating factor to an already rocky deal. In recent weeks, Musk has questioned the acquisition saying it was “on hold” pending details on the number of spam accounts on the platform, despite waiving due diligence for the transaction. Twitter said it remained “committed to completing the transaction at the agreed price and terms.”
The You’re here (TSLA) The CEO has had a checkered history with the SEC. In 2018, Musk tweeted that he was “planning to take Tesla $420 private” and that he had “funding secured”, sparking a frenzy and sending shares of the automaker up $371 from $342. The SEC later said the funding had in fact not been secured and sued Musk for misleading investors. Musk eventually settled with the SEC for $20 million and stepped down as Tesla chairman.
Musk tried to fight a provision in those regulations that requires him to have certain tweets about Tesla reviewed by lawyers before posting them — and made a number of derogatory comments about the agency. But last month, a judge refused to overturn the settlement, saying in his ruling that none of Musk’s “arguments hold water”.

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Beatriz J. Ezell
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