Musk Refiles with SEC Changing Status to Active Investor in Twitter

4/6/2022

Business

0 min read

Twitter Gets a New Board Member Who Instantly Causes Stock to Rocket

Elon Musk, known to be one of the most innovative CEOs of this generation, has been causing the SEC to become more innovative just to keep him from violating
disclosure rules and other regulations. Some of his more public SEC problems are with what he
posts on Twitter as the CEO of Tesla. On Monday, he filed the wrong regulatory paperwork, and filed it late. The report disclosed a huge stake in Twitter. On Tuesday, he refiled.

Background

On Monday (March 4), Elon Musk disclosed that he bought a 9.2% stake in the social media platform Twitter. This made him the company’s largest shareholder and set off a rally in its shares of more than 27%. US securities law requires that within ten days of acquiring 5% or more of a company, a report must be filed reporting the event. The filing said that March 14, 2022, is the date of the event that required the disclosure. Under this timeline, March 24 would have been the day the ownership report should have been filed. The penalty for this is determined per violation and could amount to $207,183, according to Urska Velikonja, a law professor at Georgetown University Law Center.

Based on the 27% increase in Twitter’s stock price, on $3 billion invested, the civil penalty wouldn’t be felt at all. But there is concern the SEC could look into market manipulation allegations regarding the Twitter stock purchase, and seek harsher sanctions in a previous and ongoing SEC problem regarding a sale he made in Tesla (TSLA) stock to raise money to pay
$11 billion in taxes.

Edit Button on SEC Reports

Do-over. Elon Musk has taken the step to refile his disclosure, placing himself in the category of an active investor. The old filing (form 13G classified him as a passive investor). The new disclosure (form 13D) categorizes Musk as an active investor. It shows he had been acquiring Twitter shares almost daily between January 31 and April 1. The price range was $32.80 to $40.30. Twitter closed Tuesday at $50.98.

Board Seat

Elon Musk has been involved in such diverse companies as Paypal (PYPL), SpaceX, Tesla (TSLA), The Boring Company, and even the Dogecoin
Foundation. No doubt, he recognizes the power of social media or micro-blogging. He is also, in his own words a, “free speech absolutist.” So, for Musk to be in the position of being the largest shareholder and have a seat in the boardroom as the company decides the best road to take for its shareholders, is considered a positive for Twitter. The company has lost significant share price this year as users have become disheartened with management’s policies regarding Tweet rules and behind the scene elevation of some discussions over others.

Take-Away

On March 25, Musk tweeted a poll: “Free speech is essential to a functioning democracy. Do you believe Twitter rigorously adheres to this principle?” The next day he Tweeted he was giving “serious thought” to building a new social media platform. This week he moved in that direction.

His public concern is that Twitter is not an open forum. The serial entrepreneur is likely to put his mark on the company as a board member and as a significant shareholder. Investors have reacted positively to the news.

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