Analysis: Tesla’s Musk could add to SEC ire with late report on Twitter involvement

SAN FRANCISCO/NEW YORK, April 5 (Reuters) – Has Elon Musk broken securities laws again?

Former securities officials and professors have said Musk may have missed a key disclosure deadline when he bought 9% of Twitter. And Securities and Exchange Commission regulators could use any shortfall to try to further punish Musk for other misconduct, some say.

Musk revealed on Monday that he bought a 9.2% stake in Twitter Inc (TWTR.N), making him the largest shareholder in the microblogging site and triggering a more than 27% rise in the company’s shares. The record shows March 14, 2022 as the date of the event that requires reporting.

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US securities law requires disclosure within 10 days of acquiring 5% of a company, which in Musk’s case would be March 24. A late report could result in a civil fine per violation of up to $207,183, after adjusting for inflation, according to Urska Velikonja. , professor of law at Georgetown University Law Center.

It’s a financial slap in the face for Musk, the world’s richest person with a net worth of $302 billion, according to Forbes, but the regulator could look into allegations of market manipulation over buying stocks on Twitter and seek tougher penalties in an ongoing investigation into its Tesla stock. sales, experts say.

“It’s not really a gray area. He acquired it and didn’t file a case within 10 days. It’s a violation. And so it’s a slam dunk case from the point of view of the SEC,” Adam C. Pritchard, a law professor at the University of Michigan Law School, said.

The SEC is also investigating Musk’s November 6, 2021 tweet asking his followers if he should sell his 10% stake in Tesla. The regulator reached a deal in 2018 for Musk to get pre-clearance on some of his tweets, following a tweet from Musk that he had “secure funding” to take Tesla private. The SEC said that defrauded investors.

The SEC said last month it had told attorneys for Musk and Tesla that staff were investigating possible violations of federal securities law.

Pritchard said the SEC could “tell a court that he is a repeat offender of securities laws and needs to be dealt with harshly.”

The SEC and Tesla did not respond to requests for comment from Reuters.

Musk also made emotional comments on Twitter after his purchase, without disclosing his involvement.

On March 25, Musk tweeted a poll: “Free speech is essential to the functioning of a democracy. Do you believe that Twitter strictly adheres to this principle? »

A day later, Musk, himself a prolific Twitter user, said he was seriously considering creating a new social media platform.

“Musk is taking real risks here,” Velikonja said. Musk was playing a game with SEC officials, saying “‘Arrest me if you can, but you can’t,'” she said, adding, “I suspect the SEC is going to look long and hard whether it can bring manipulation charges, as well as failure to file.

Musk recently criticized the social media platform and its policies, accusing the company of not adhering to free speech principles.

“It’s arguable that his social media posts about potential alternatives to Twitter may be considered, in light of his previously undisclosed involvement, a form of market manipulation to affect share price, but prove that it sounds difficult,” said Howard Fischer, a former SEC adviser. and a partner at law firm Moses & Singer, said.

“Whether the disclosure of his stake caused a price hike that caused Musk’s stake to rise in value is something the SEC could look into.”

Twitter shares have surged since mid-March when Musk bought his stake. Musk’s stake, valued at around $2.4 billion at the March 14 closing price, jumped to $3.7 billion at Monday’s closing price.

Additionally, some timely Twitter options trades days before Musk reveals his purchase are raising eyebrows among options analysts.

“The SEC would certainly look into whether anyone who knew about the acquisition of these shares was trading before the filing. I really think that would be the goal rather than the delay,” said former enforcement attorney Jacob Frenkel. of the law with the SEC and in charge of government investigations. Chairman of the Securities Enforcement Practice for the law firm Dickinson Wright.

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Reporting by Hyunjoo Jin and Chris Prentice, additional reporting by Katanga Johnson and Megan Davis; Editing by Peter Henderson and Stephen Coates

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Amanda J. Marsh