The U.S. financial watchdog has contacted Elon Musk about the disclosure of his stake on Twitter, asking Tesla’s chief executive officer why he appeared to be filing a crucial form late.
The Securities and Exchange Commission issued a letter to the world’s richest man asking a series of questions about how it declared its acquisition of a 9.2% stake on April 4. The move sparked a flurry of corporate activity that led Twitter to accept a $ 44 billion (£ 35 billion) takeover bid from Musk on April 25, although it has since announced that the deal is “pending” while seeking more information on the proportion of fake Twitter accounts.
In the April 4 letter, the SEC asked why a 13G form announcing Musk’s acquisition of a large stake “does not appear” to have been filed within 10 days of the stake exceeding the 5% level where it must be publicly disclosed. . According to Musk’s filing, it exceeded the 5% mark on March 14, so it should have filed the form by March 24.
“Please tell us why the 13G calendar does not appear to have been made within the required 10 days from the date of acquisition, as required by Rule 13d-1 (c), Rule in which you stated that you trusted to make the presentation, “the SEC said in the letter, dated 10 days before Musk announced his takeover bid.
The SEC said that once Musk’s response was reviewed, “it may have additional comments.” In 2018, Musk reached an agreement with the SEC via a tweet in which he said he was considering taking Tesla out of the stock market and becoming privately owned and had “secured funding” for the proposal.
Investors filed a lawsuit against Musk on Wednesday, claiming that Musk had saved $ 156 million by not revealing that he had bought more than 5% of Twitter in a timely manner.
The letter also asks Musk to explain why he introduced a 13G, which is for passive investors who are not preparing to shake up the business in question. The SEC points out that an investor must file a different form, a 13D, if he has purchased the shares with the intent to change or influence the control of the company in question. The day after filing its initial form, Musk resubmitted it as 13D, for investors intending to play an active role.
“The difference between a 13D and 13G presentation lies primarily in the intent of the buyer. If the buyer intends to exercise control, with a vague definition, he must present a D,” said Brian Quinn, an associate professor at the Boston College of Law. “The 13D is an important signal to the market that the buyer intends to be active with respect to the company. 13G indicates that the buyer intends to remain passive and not exercise control. “
John Coffee, a law professor at Columbia University, said the letter did not represent the start of a formal investigation, although that may have changed given the date it was sent. “Technically, this would not be called an investigation, as there is no evidence that it was sent to the Execution Division (perhaps because this letter is more than a month and a half old).” he said. “Is Musk in trouble? He should be. Not only was he late to show up while buying more stock, but his various tweets hinted at news that is changing the market and may have manipulated the market,” he said. add Coffee, pointing to a tweet on April 20 when Musk hinted at a public offering for the market. business.
In the letter, the SEC asked Musk to provide a brief analysis of why it thought it could rely on a clause allowing passive investors to file a 13G instead of a 13D. He calls for the analysis to also address tweets posted by Musk questioning whether Twitter “strictly adheres” to the “principles of free speech,” implying that it may want to influence the company.
Meanwhile, Twitter said on Friday it would not accept Egon Durban’s resignation from the board, two days after shareholders blocked his re-election at an annual meeting.
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Durban is the co-executive director of private equity firm Silver Lake and is an ally of Musk.
Twitter said Durban did not receive the majority of votes in the re-election held earlier this week due to “the voting policies of certain institutional investors regarding the limitations of the council’s service.”
Durban, who serves on the boards of six other companies, has agreed to reduce the board’s service commitments to no more than five public company boards by May 25, 2023, Twitter said. . The social media company added that Durban was an “effective member” of the board and provided “unmatched operational knowledge of the industry”.