According to reports, Tesla CEO Elon Musk is facing an enquiry into the details of him acquiring a significant stake in social media platform, Twitter Inc. (TWTR), with federal regulators claiming that he was late in filing an important form required in the process.
Securities and Exchange Commission or SEC regulations make it mandatory that shareholders must make a public disclosure when they reach a 5 percent ownership stake in a company. Elon Musk did so, but only on April 4, which is 10 days after his stake met the requirements needed for disclosure.
According to reports in the Wall Street Journal, the SEC rule supposedly allows existing shareholders to receive a warning that the company may be facing a buyout attempt. The delay, which happened in Musk’s case allowed him to purchase additional stock without providing that warning.
Musk’s April 4 disclosure revealed that he passed the 5% threshold on March 14, meaning that he needed to disclose that purchase by March 24. He did not do that and the following Twitter stock purchases after March 24 gave him the 9.2% ownership he made public on April 4.
Elon Musk bought the additional 4.2% at between $38.20 and $40.31 per share, a price, which was likely much lower than it would have been had he disclosed his 5% stake at the correct time. Given that Twitter’s stock price shot up to $49.97 the day Musk finally disclosed his purchase, he likely saved nearly $145 million with the late disclosure, University of Pennsylvania accounting professor Daniel Taylor told WSJ.
Security law experts are concerned that Musk’s move could lead to another fight with the SEC, days after his disclosure in April.
The probe is not Musk’s first run-in with the SEC. The regulatory authority had sued Musk in 2018 for allegedly misleading Tesla shareholders with a now-infamous tweet that he planned to make Tesla private at $420 per share.
Musk would ultimately make a settlement in that case, and at present, his tweets are all scanned by a lawyer before being published.
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