Elon Musk’s Twitter investment raises new regulatory red flag


Elon Musk has set the stage for a new fight with the Securities and Exchange Commission, this time over how he disclosed his investment in Twitter Inc. that has made him the company’s largest investor.

The Tesla Inc. chief executive disclosed his 9.2% holdings in a form investors are required to file when they buy more than 5% of a company’s stock, without planning to seek control. But the notice came several days late. It also didn’t include a standard certification that underscores an investor’s passive status.

Mr. Musk didn’t respond to a request for comment on his filing.

The SEC in the past has brought enforcement actions against some people who missed ownership-disclosure deadlines repeatedly. And the issues with his disclosure could hurt Mr. Musk in his continuing legal wrangling with the SEC, according to lawyers.

Mr. Musk last month asked a federal judge to scrap a fraud settlement he reached with securities regulators in 2018, which requires some of his Tesla-related tweets to be preapproved by company lawyers. He argued that the SEC is abusing the social-media policy to continuously investigate his statements, a claim the regulator denies. Mr. Musk’s failure to file the required form on time could hurt his ability to convince the court that regulators are unnecessarily hounding him, lawyers said.

“He is making all these claims the SEC is harassing him and going after him for nothing, and if he goes ahead and violates a pretty straightforward rule, that is certainly not going to help his argument with the judge,” said David Rosenfeld, a former senior SEC enforcement attorney now teaching law at Northern Illinois University.

In a filing Monday, Mr. Musk reported owning almost 73.5 million shares of Twitter, representing a stake valued at $2.9 billion, based on Friday’s closing price. The disclosure says his ownership of Twitter shares exceeded 5% of shares outstanding as of March 14. Investors whose holdings surpass the 5% mark are required to report their stake within 10 calendar days.

Mr. Musk reported the stake in what is known as a 13G report, a filing reserved for passive investors. Shareholders typically include a certification that says they didn’t acquire the securities to change or influence control of the company that issued them. Mr. Musk didn’t include that statement on his form. Instead, he simply wrote: “Not Applicable.”

The SEC also could inquire about Mr. Musk’s self-declared stance as a passive shareholder. He hadn’t disclosed his stake before tweeting dissatisfaction with the company’s content-moderation policies in late March, when he raised the question of whether a new social-media platform was needed. That is the kind of statement activist investors sometimes make when they plan to shake up a company.

On March 25, 11 days after becoming the largest shareholder in Twitter, Mr. Musk tweeted a poll, saying, “Free speech is essential to a functioning democracy. Do you believe Twitter rigorously adheres to this principle?” He added in a follow-up tweet: “The consequences of this poll will be important. Please vote carefully.”

Days later, he tweeted that he had been “giving serious thought” to creating a new social media platform, without disclosing specifics.

An SEC spokesman didn’t return an email seeking comment. An attorney for Mr. Musk didn’t return a call seeking comment.

Later Monday, Mr. Musk tweeted to ask, “Do you want an edit button?,” referencing a feature many Twitter users have requested. Twitter CEO Parag Agrawal tweeted back, “The consequences of this poll will be important. Please vote carefully,” in a seeming reference to Mr. Musk’s March 25 tweet.

Howard E. Berkenblit, a partner at law firm Sullivan & Worcester LLP, said regulators could look into those tweets. His statements about Twitter’s speech policies don’t clearly hint at plans to influence or change control of Twitter, Mr. Berkenblit said.

“He is not trying to influence the board or the strategy of the company. That would be his counterargument,” Mr. Berkenblit said. “Like any other shareholder, he is just expressing his opinion. Certainly, the SEC could ask him questions and ask him to defend that.”


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