ANALYSIS-Tesla’s Musk could add to US SEC’s ire with late report on Twitter involvement

Did Elon Musk break US securities laws again? Former securities officials and professors say Tesla Inc’s chief executive may have missed a key disclosure deadline and filed the wrong paperwork when he bought 9% of Twitter Inc, a regularly used platform by the outspoken billionaire. 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, 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 necessitated the disclosure. US securities law requires disclosure within 10 days of acquiring 5% of a company, and in Musk’s case, the 10-day deadline was March 24. A late report could result in a civil fine per violation of up to $207,183, according to Urska Velikonja, a law professor 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 SEC could look into market manipulation allegations over the Twitter stock purchase and ask harsher penalties in an ongoing investigation into his 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,” said Adam C. Pritchard, a law professor at the university. from Michigan Law School, said.

In addition, Musk filed a “13G” disclosure form for investors who plan to hold their shares passively, even though it emerged Tuesday that Musk would serve on Twitter’s board to push change in the company. ‘business. That means he should have filed Form “13D” used by activist investors, officers and directors who have the ability to influence an issuer’s management and policies, multiple attorneys said.

Eleazer Klein, co-chair of the global shareholder activism group at Schulte Roth & Zabel, said Musk’s use of Form 13G was not appropriate and regulators may have reason to review the matter. Musk amended his earlier filing on Tuesday and filed Form 13D to report a change in his status as an active investor.

The SEC is already investigating Musk’s November 6, 2021 tweet asking his followers if he should sell his 10% stake in Tesla. Musk is also bound by a 2018 SEC rule that requires him to get pre-approval on some of his tweets, after he tweeted that he had “secured funding” to take Tesla private. The SEC said he defrauded investors.

Musk says the SEC is harassing him in a bad faith effort to punish him for criticizing the government, and he’s fighting to nullify the deal. Pritchard said the SEC could “tell a court that he is a repeat offender violating securities laws and needs to be dealt with harshly.”

The SEC and Tesla did not respond to requests for comment. Shares of Tesla closed down 4.7% on Tuesday.

‘REAL RISKS’ Musk also commented on Twitter after his purchase but before disclosing his stake.

On March 25, Musk tweeted a poll: “Free speech is essential to the functioning of a democracy. Do you believe Twitter strictly adheres to this principle?” A day later, Musk said he was seriously considering creating a new social media platform.

“Musk is taking real risks here,” Georgetown Law’s 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 into long and seriously if she can bring charges of manipulation, as well as non-reporting.” Musk recently slammed Twitter 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 the stock price, but proving that seems difficult,” said Howard Fischer, an SEC veteran. lawyer and partner in the law firm Moses & Singer. “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. The 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 likely investigate whether anyone knew about the acquisition of the shares traded before the filing, said Jacob Frenkel, former SEC law enforcement attorney and chairman of government investigations and practice. of securities enforcement for the law firm Dickinson Wright. “I really think that would be the goal rather than the delay,” Frenkel said.

(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)

Amanda J. Marsh