The S.E.C. Sent a Letter to Musk About His Twitter Shares in April

The Securities and Exchange Commission announced on Friday that it had begun investigating the purchase of Elon Musk’s Twitter stock in early April and began investigating whether it had properly disclosed its stake and intentions for the social media company.

In a regulatory filing, the agency said it had contacted Mr. Musk on April 4. At that time Mr. Musk, the world’s richest man, became Twitter’s largest shareholder with a 9.2 percent stake in the company. Mr. Musk also filed a securities document stating that he planned to keep the investment inactive and did not intend to control the company.

Ten days later Mr. Musk offered $ 54.20 a share to buy Twitter in its entirety. Twitter later agreed to sell itself to Shree. Musk for about 44 billion; The transaction is expected to close in the next few months.

In a letter to Mr. Musk on April 4, the SEC questioned whether he had disclosed his stake at the appropriate time. By law, shareholders who purchase more than 5 percent of the company’s shares are required to declare their ownership within 10 days of reaching that threshold. In regulatory filing, Mr. Musk said it crossed that threshold on March 14, but did not announce its purchases until April 4.

In its letter, the SEC also questioned whether Mr. Musk was a truly “passive” investor, as he had already publicly criticized Twitter’s content moderation policies and tweeted recommendations on how the social media company should change.

Some legal experts have said that filing as a “passive investor” when secretly planning to take over a company is a “fraud.” They add that such cases are rarely prosecuted and difficult to prove.

The SEC declined to comment. Mr. Musk did not respond to a request for comment. Attorney for Mr. Musk declined to comment.

The Federal Trade Commission is also looking into whether Mr. Musk violated advertising requirements by failing to notify the agency of its large stake in Twitter. Investors must generally notify regulators of large share purchases to give government officials 30 days to review transactions for competition breaches.

Mr. Musk, who is also the chief executive of electric car company Tesla and rocket maker SpaceX, has previously been embroiled in controversy with the SEC. He faced regulatory scrutiny in 2018 when he announced on Twitter that he planned to privatize Tesla and that he had obtained credit for the deal.

The SEC charged Mr. Musk with securities fraud because he said the transaction he mentioned was uncertain and the funds were not locked down. Mr. Musk and Tesla settled for $ 40 million. Under the terms of his contract with the regulator, Mr. Musk should have his tweets run by Tesla’s lawyer if they contain physical statements about the car maker. Last month Mr. Musk tried to end the system of tweet approval in court, but a judge denied his request.

Shareholder lawsuit against Mr. Musk claims in his tweet that he plans to privatize Tesla. Mr. Musk is also facing lawsuits from Twitter shareholders over his delayed announcement about his purchase of the social media company’s shares.

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