ACCORDING TO The Wall Street Journal, the Securities and Exchange Commission is investigating Elon Musk’s late disclosure of his Twitter share purchase last month. Because he purchased over 5% of the outstanding shares, he was required to file a public disclosure form. He was at least 10 days late, reporting his purchase on April 4th, and bought more Twitter stock. Ultimately, he decided to buy the social media company outright for $44 billion using a combination of debt and equity to finance it. Further, the Federal Trade Commission is looking at the deal. Did Musk violate a law by failing to report such large transactions required for the agency to evaluate any anti-trust issues?
Such a disclosure informs other shareholders that a single investor may be attempting to influence or control a company. Presumably the shares would increase in price, but because of the delay, the stock market was kept in the dark and some investors may have made investment decisions differently had they known. They may have been disadvantaged financially by the delay in disclosure. Musk, though, may have saved himself over $143 million, according to the WSJ.
Not only is Musk being probed by two alphabet agencies for his tardiness, he is being sued by Twitter shareholders. Likewise, the clumsy handling of the buy-out has resulting in the Twitter Board of Directors being sued by at least one pension fund. One can only presume the Board will be sued by shareholders, too.
This is not the first time the S.E.C. has scrutinized Musk’s actions. Last month, a judge ruled Musk must comply with a securities fraud settlement to the tune of multiple-millions after Musk tweeted threat to take Tesla private in 2018, according to the Associated Press.
The press is treating Musk’s purchase as a fait d’accompli, even though there could still be hurdles, e.g., although Musk is deemed the world’s wealthiest person with about $224.5 billion, his net worth has deteriorated lately. Forbes says it declined by $31.4 billion since Friday due to a 15% drop in Tesla’s market cap. It’s fallen even more this week, as has the stock market overall. This, alone, could theoretically trigger a stop to the purchase, although there is also a chance Twitter’s financial disclosures will be found wanting, killing the deal.
Musk’s mistakes remain to be seen, but could prove to be very expensive ones.
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