Elon Musk’s Belated Disclosure of Twitter Stake Triggers Regulators’ Probes

WASHINGTON — Federal regulators are investigating Elon Musk’s late-month disclosure of his sizable stake in Twitter. Inc.,

TWTR -2.48%

According to people familiar with the matter, the delay allows him to buy more shares without notifying other shareholders of his ownership.

The Securities and Exchange Commission is examining Musk’s delayed filing of a public form that investors must file when they purchase more than 5% of a company’s shares, the people said. Disclosure functions as an early indication to shareholders and companies that a significant investor may seek to control or influence a company.

Tesla Inc.

The CEO filed on April 4, at least 10 days after his shares passed the trigger point for disclosure. Mr. Musk has not publicly explained why he did not submit the application in time.

The SEC investigation was previously unreported. An SEC spokesman declined to comment. An attorney for Mr Musk did not respond to a message Wednesday seeking comment.

Daniel Taylor, a professor of accounting at the University of Pennsylvania, said Musk could have saved more than $143 million by not reporting that his transaction had crossed the 5% threshold, as the stock price could have remained low. higher if the market knows the billionaire is increasing. .

Investors who cross that line are required to file a form with the SEC to disclose their holdings within 10 days. Securities records show Musk’s holdings increased to 5% on March 14, meaning he should have disclosed his holdings by March 24 under SEC rules.

After March 24, Musk purchased about $513 million worth of stock at prices ranging from $38.20 to $40.31 a share, according to a regulatory filing. This total purchase made him Twitter’s largest individual shareholder with a 9.2% stake.

Based on Twitter’s closing price of $49.97 on April 4, the day Mr Musk revealed his stake, he could have saved more than $143 million on those deals, said Dr. estimate.

“The case was very easy. It’s simple. But whether they decide to go to war with Elon is another question,” said Dr Taylor, referring to the prospect of a regulatory lawsuit against the outspoken businessman.

Elon Musk has cultivated close ties with Beijing to build Tesla’s business in China. Now that he’s buying Twitter and focusing on free speech, the WSJ looks at how China has used the social media platform to promote its views and why that has raised concerns. Photo illustration: Sharon Shi

The SEC can drop its investigation without bringing civil claims, because not every investigation leads to formal action. An SEC lawsuit against Mr. Musk would be unlikely to order the Twitter deal because the company’s board of directors has confirmed it, and the SEC generally has not, said Jill E. Fisch, a stockbroker and firm. reserves the right to prevent mergers or private transactions. professor of law at the University of Pennsylvania School of Law.

Regulators could ask for a court order preventing Mr. Musk from voting on shares he acquired without proper disclosure, but the SEC as a whole has not pursued that remedy, Fisch said. speak.

On the initial form disclosing the stock purchase on his Twitter, Mr Musk said he is a passive shareholder, meaning he has no plans to take over Twitter or influence its management or business. it. The next day, he submitted another application form demonstrating a deeper attachment to the company, including an April 4 offer to join the company’s board of directors.

Musk offered to buy Twitter a week later for $44 billion. The deal is expected to close by the end of the year and must be approved by Twitter shareholders. SEC investigators, who searched the documents from Twitter, are probing whether Musk’s initial disclosure should reveal more about his investment plans, the people said. .

Mr. Musk is a heavy user of Twitter, who says the platform is wearing away at the company’s approach to content moderation, which censors some users. “I hope that even my worst critics remain on Twitter, because that’s what free speech means,” he tweeted April 25.

He also has a long history of feuding with the SEC, an agency that sued him in September 2018 for allegedly fraudulent claims he made on Twitter about obtaining funds. funding to take Tesla private. Musk settled the case by paying a $20 million fine, relinquishing his role as Tesla chairman and agreeing to have certain tweets about Tesla pre-resolved by the company’s attorneys.

Musk recently denied lying in 2018 about Tesla being private and said he felt pressured to address the SEC’s investigation. A federal judge last month dismissed his petition to rescind the agreement and overturned a policy for his tweets to be monitored by attorneys general.

Separately, the Federal Trade Commission is investigating whether Mr. Musk broke a law that requires companies and people to report certain large transactions to antitrust enforcement agencies. , according to a person familiar with the matter. Once an application is filed, investors typically wait at least 30 days — giving the government time to review the sale to see if it affects competition — before buying more stock.

Activist investors are subject to antitrust filing requirements if a company’s stock purchase exceeds a threshold — typically $92 million — and their existing assets are greater than $20 million. . Passive investors who hold less than 10% of the company’s shares and do not plan to participate in governance or direct basic business decisions are exempt from the requirement.

If the FTC alleges a violation of the law, the FTC can request fines of up to $43,792 a day. The FTC investigation was previously reported by The Information website.

Write letter for Dave Michaels at dave.michaels@wsj.com

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Edmund DeMarche

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