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Analysis-Musk’s Tesla May Add to US SEC Fury With Late Report on Twitter Shares According to Reuters


© Reuters. FILE PHOTO: SpaceX owner and Tesla CEO Elon Musk gestures during a conversation with legendary game designer Todd Howard (not pictured) at the E3 gaming conference in Los Angeles, California, U.S., day June 13, 2019. REUTERS / Mike Blake

By Hyunjoo Jin and Chris Prentice

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

Former securities officials and professors say the chief executive of Tesla (NASDAQ:) Inc may have missed a key disclosure deadline and filed wrong paperwork when he bought a 9% stake Twitter Inc (NYSE:), a platform frequently used by outspoken billionaires. Some believe that Securities and Exchange Commission regulators could use any shortfalls to try to punish Musk more for other missteps.

On Monday, Musk revealed that he bought a 9.2% stake in Twitter, making him the microblogging site’s largest shareholder and sending the company’s stock up more than 27%. The filing says March 14, 2022, is the date of the event requesting the disclosure.

U.S. securities laws require disclosure within 10 days of purchasing a 5% stake in a company, and in Musk’s case, the 10-day deadline is March 24. can result in civil penalties for each violation of up to $207,183, according to Urska Velikonja, a law professor at Georgetown University Law Center.

It’s a financial slap on the wrists of Musk, the world’s richest man with a net worth of $302 billion, according to Forbes, but the SEC could look into allegations of market manipulation related to buying Twitter shares and seeking harsher sanctions in an ongoing investigation involving its Tesla stock sales, experts said.

“This isn’t really a gray area. He bought it and didn’t file it within 10 days. It was a breach. And so it’s a serious case from the SEC’s point of view.” , said Adam C. Pritchard, a law professor at the University of Michigan Law School.

Additionally, Musk has filed a “13G” disclosure for investors who plan to hold their shares passively, despite appearing on Tuesday that Musk will take a seat on Twitter’s board. to drive change at the company.

That means he should file a “13D” form used by activist investors, officials and directors who have the ability to influence the management and policy of a development organization. practice, several lawyers said.

Eleazer Klein, co-chair of the Global Shareholder Action Group at Schulte Roth & Zabel, said Musk’s use of the 13G form was inappropriate and regulators may have reason to look into the matter.

On Tuesday, Musk revised his previous filing and filed a 13D form to report his change of status to an active investor.

The SEC is currently investigating Musk’s tweet on November 6, 2021, asking his followers whether he should sell 10% of his Tesla shares.

Musk is also bound by a 2018 SEC settlement 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 says he misled investors.

Musk said that the SEC is harassing him in a bad faith attempt to punish him for criticizing the government and that he is fighting to void the deal.

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

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

Tesla shares closed down 4.7% on Tuesday.

“REAL RISK”

Musk also made comment on Twitter after the purchase but before disclosing his stake.

On March 25, Musk tweeted a poll: “Freedom of speech is essential to a working democracy. Do you believe that Twitter strictly adheres to this principle?”

A day later, Musk said he was giving “serious thought” to building a new social media platform.

“Musk is taking a real risk here,” said Velikonja of Georgetown Law. Musk was playing a game with SEC officials, saying, “Stop me if you can, but you can’t,” she said, adding, “I doubt the SEC will look long and hard at it.” see if they can introduce manipulative fees, along with failure to file.”

Musk was early to criticize Twitter and its policies, accusing the company of failing to adhere to free speech principles.

“Arguably, his social media posts about potential alternatives to Twitter could be seen as a form of market manipulation to influence,” said Howard Fischer, a former SEC. to stock prices. consultant and partner at the law firm Moses & Singer.

“The disclosure of his shares that caused a price increase that caused Musk’s shares to increase in value is something the SEC could look into.”

Twitter stock has rallied since mid-March when Musk bought his shares. The shares, worth about $2.4 billion at the March 14 closing price, had grown to $3.7 billion as of Monday’s closing price.

Additionally, some well-timed trades in Twitter options days before Musk revealed his purchase are getting the attention of options analysts.

According to Jacob Frenkel, a former SEC enforcement and government investigations attorney and chairman of securities enforcement at law firm Dickinson Wright, the SEC is likely to investigate if anyone knows about the purchase. shares traded prior to filing.

“I really think that’s going to be the focus rather than the delay,” Frenkel said.

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