Tesla’s CEO has disclosed a 9.2% stake in Twitter, the principles of which he denounces.
Elon Musk has become Twitter’s (TWTR) – Get Twitter, Inc. Report largest shareholder. And he was given a seat on the board of the microblogging website.
The Tesla (TSLA) – Get Tesla Inc Report chief executive on Monday made the surprise disclosure of the stake in a Securities and Exchange Commission filing.
In this document, declaring that the Tesla chief executive held 9.2% of Twitter, one particular detail is noteworthy.
Musk acquired his Twitter stake on March 14, according to the disclosure. He said the investment was passive. And he chose a disclosure form that suggests he didn’t plan to take control of the company or to influence the people who control it.
The billionaire also allowed 21 days to pass between the time of the acquisition and the disclosure.
This is where things get complicated. The SEC rules are clear: An investor who acquires a passive stake of 5% or more of a company has 10 calendar days to disclose it.
Did Musk Provoke the SEC?
“A pledgee of securities who prior to default lacks the power either to vote or to dispose of the securities is not considered to be the beneficial owner of the securities, provided the pledge agreement is bona fide and was not entered into with the purpose or effect of changing or influencing the control of the issuer,” according to the SEC’s rules.
“The pledgee will be deemed to have acquired beneficial ownership of the pledged securities on the date of default and therefore the pledgee must file a schedule 13D within 10 days thereafter.”
If we stick to this rule, Musk should have disclosed his stake in Twitter around March 25. But that day the tech mogul chose to do something else instead.
He asked his more than 80 millions followers on the social-media platform if they believed Twitter rigorously adhered to the principle of free speech:
“Free speech is essential to a functioning democracy. Do you believe Twitter rigorously adheres to this principle?”
The question was accompanied by a poll answered by more than 2 million Twitter users. Just over 70% responded that Twitter did not fully comply with the First Amendment.
Musk also warned: “The consequences of this poll will be important. Please vote carefully.”
The next day, Musk took another step in his tough stance against Twitter. He felt that Twitter had become “the de facto public town square, failing to adhere to free speech principles fundamentally undermines democracy.”
And he posed to Twitter users an interesting idea that if implemented would have the potential to change the social-media landscape.
“Is a new platform needed?” Musk asked.
The SEC has not yet reacted.
TheStreet has asked Tesla for comment. The premium-electric-vehicle maker hasn’t had a communications department since last year.
Musk and the SEC Have a Strained Relationship
Penalties for breaking disclosure rules aren’t very onerous, especially for someone with a net worth close to the $288 billion attributed to Musk by the Bloomberg Billionaire Index.
In 2020, the SEC imposed a $100,000 fine on investment manager WCAS Management (Welsh Carson) for reporting violations.
“The SEC’s order finds that Welsh Carson caused the private funds to violate the beneficial ownership reporting provisions (…) thereunder by failing to file timely amendments to the previously filed schedule,” the agency said at the time.
“Without admitting or denying the SEC’s findings, Welsh Carson agreed to a cease and desist order and to pay a penalty of $100,000.”
Musk and the SEC have a very complicated relationship. The executive and the regulator are currently engaged in a legal battle related to the 2018 Tweetgate affair.
The Tweetgate affair started on Aug. 7, 2018, with this post by Musk on his Twitter account:
“Am considering taking Tesla private at $420. Funding secured.”
The tweet shook Tesla stock. The SEC filed a complaint against Musk.
A settlement was reached and announced on Sept. 29, 2018. It required Musk to step down as Tesla’s chairman. Tesla and Musk agreed to pay $40 million in penalties. Tesla also agreed to have the company’s lawyers preapprove tweets with material information about the company.
But Tesla disclosed in a Feb. 7 regulatory filing that in November it had received a subpoena from the SEC requesting information related to the settlement. That accord had mandated that the company vet Musk’s tweets on information that could weigh on the stock.
The SEC also served Musk with a subpoena on Nov. 29 regarding a formal investigation into his Twitter activity.
The billionaire has since asked a New York judge to end at least part of the 2018 agreement.
“Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock. Do you support this?” Musk posted on Twitter on Nov. 6, 2021.
He continued: “I will abide by the results of this poll, whichever way it goes.”
Since then, the two camps have been clashing again. Musk even suggested on Twitter that he was building a case against the regulator.
