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Elon Musk, a controversial figure, is often referred to as a black hole due to his enigmatic nature. Information seems unable to pass through him and instead bends around him. He is both exceptionally large in stature and yet incredibly uninteresting.
Once again, we find ourselves compelled to discuss Musk because on Thursday, the SEC (US Securities and Exchange Commission) took legal action against him. The regulatory body is bringing Musk to court over his refusal to testify in an investigation regarding his Twitter stock purchases and his statements surrounding the $44 billion takeover bid of the social media platform.
In a recent filing with the California federal court, the SEC stated that it is conducting a confidential investigation to determine if Musk has violated any federal securities laws related to his purchase of Twitter stock and his statements in 2022 regarding Twitter, as documented in his SEC filings.
While the filing may initially appear intriguing, upon closer inspection, it is mostly bureaucratic in nature. It primarily concerns the disclosure of Musk’s share purchases leading up to his takeover offer of Twitter. Details of these events have been extensively covered in previous articles by FTAV, but to summarize:
– Musk began buying Twitter stock on January 31, 2022.
– On March 14, his stake surpassed 5%, triggering a 10-day deadline for disclosure.
– March 24 came and went, with Musk continuing to make regular purchases of Twitter stock.
– On March 26, Musk reached out to Twitter directors, including founder Jack Dorsey, to discuss his stake and the possibility of joining the board. These conversations continued into early April.
– On March 31, Twitter arranged a meeting with Musk at an Airbnb farmhouse near San Jose airport to discuss terms with CEO Parag Agrawal and board chair Bret Taylor.
– On April 3, Twitter officially invited Musk to join its board and provided him with a standard contract.
– On April 4, Musk disclosed a 9.2% stake in Twitter by filing a backdated Schedule 13G, which is typically used by passive shareholders.
– On the same day, Musk expressed his dissatisfaction with the standard director’s contract and proposed a cap on his share purchases at 15%. The Twitter board agreed to his demands.
– On April 5, Twitter announced Musk’s appointment to the board pending routine background checks. Musk also filed a long-form disclosure, Schedule 13D, to provide further details of his holdings.
– On April 9, Musk informed Twitter that he had decided against joining the board and instead intended to take the company private.
– On April 10, Twitter announced the proposed privatization to shareholders and hired Goldman Sachs to handle the process.
– Musk formally made an offer to acquire Twitter on April 13 and publicly released the offer letter on April 4.
One notable issue with the above sequence of events is the delayed disclosure of Musk’s stake in Twitter. When the disclosure was finally made, the stock price increased by 27%, potentially saving Musk money. However, the financial significance of this delay, estimated at $143-200 million, seems relatively insignificant given Musk’s other financial ventures, such as his large investments in dogecoin.
Nevertheless, the principles of maintaining market integrity are paramount. The SEC recently charged six investors with repeated late filing of transaction forms, collectively valued at $90 million, imposing penalties ranging from $120,000 to $150,000. While Musk’s case differs slightly, it raises questions about the appropriate use of disclosure forms like Schedule 13G.
Another issue at hand is the content of Musk’s initial 13G form, which did not include the required pledge regarding control of the issuer. The SEC’s Office of Mergers and Acquisitions raised this concern, but Musk has not publicly responded. It remains unclear whether this omission was a mistake or an intentional exploitation of a loophole.
In summary, the current situation between Musk and the SEC can be seen as a minor dispute with low stakes. Musk was scheduled to testify on September 15 but failed to appear. The SEC offered the option for him to testify in Texas, closer to his home, but Musk raised objections. After receiving a subpoena, Musk accused the SEC of harassment, a claim that may not seem unfounded given his previous actions. While a late disclosure investigation could have been resolved quickly, the presence of additional potential infractions seems to complicate matters unnecessarily.
Regardless of the SEC’s final conclusions and its standards of integrity, Musk is likely to continue ignoring the regulatory body and focus on engaging with his online following, as is his tendency. “Enough is enough,” stated Alex Spiro, Musk’s attorney, giving voice to a sentiment shared by many.
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