The US Financial Supervisory Authority contacted Elon Musk about the disclosure of his stake in Twitter, and asked the Tesla CEO why he was late in submitting a crucial form.
The Securities and Exchange Commission published a letter to the world’s richest man asking a series of questions about how he announced his acquisition of a 9.2% stake on April 4. The move prompted a flurry of corporate activity that led to Twitter accepting a $44 billion (£35 billion) takeover offer from Musk on April 25 – although it has since declared the deal “on hold” as it seeks more Information about the percentage of fake accounts on Twitter.
In an April 4 letter, the Securities and Exchange Commission questioned why Form 13G to announce Musk’s acquisition of a significant stake “doesn’t appear” within the required 10 days of a stake above the 5% level where it must be publicly disclosed. According to Musk’s own filing, he passed the 5% level on March 14th, and therefore had to submit the form by March 24th.
“Please inform us why Schedule 13G does not appear to have taken place within the required 10 days of the acquisition date as required by Rule 13d-1(c), the rule under which you relied on making the application,” the Securities and Exchange Commission said in The letter, dated 10 days before Musk announced his takeover offer.
Once it reviews Musk’s response, the Securities and Exchange Commission said it “may have additional comments.” In 2018, Musk reached a settlement with the Securities and Exchange Commission over a tweet in which he said he was considering taking Tesla out of the stock market into private equity and “securing funding” for the proposal.
Investors filed a lawsuit against Musk on Wednesday alleging that Musk saved himself $156 million by not disclosing that he had bought more than 5% of Twitter in a timely manner.
The letter also asks Musk to explain why he is applying for 13G, which is intended for passive investors who are not prepared to change the business in question. The Securities and Exchange Commission notes that an investor must file a different form, 13D, if he or she purchased the stock with the intent to change or affect the control of the company in question. The day after the prototype was submitted, Musk reworked it into 13D, for investors intending to take an active role.
The difference between the 13D and 13G deposit lies mostly in the intent of the buyer. “If a buyer intends to exercise control — loosely defined — he should submit a D degree,” said Brian Quinn, associate professor at Boston College of Law. “13D is an important signal to the market that the buyer intends to be active in relation to the company. The 13G indicates that the buyer intends to remain passive and not exercise control.”
John Coffey, a professor of law at Columbia University, said the letter did not mark the beginning of a formal investigation, although that may have changed given the date it was sent. “Technically, this would not be called an investigation as there is no indication that it has been referred to the enforcement department (it may be dated because this letter is dated over a month and a half ago),” he said. “Is Musk in trouble? He must be. Not only was he late to register as he bought more shares, but his various tweets hinted at news moving the market and possibly manipulating the market,” Covey added, noting Tweet on April 20 When Musk alluded to a tender offer for the works.
In the letter, the Securities and Exchange Commission asked Musk to provide a brief analysis of why he believes he can rely on a provision that allows passive investors to apply for 13G instead of 13D. He asks that the analysis also address tweets posted by Musk in which he questions whether Twitter is “strongly in compliance” with the “Free Speech Principles”, which means he might want to exert influence over the company.
Meanwhile, Twitter said on Friday it would not accept Egon Durban’s resignation from the board, two days after shareholders blocked his re-election at an annual meeting.
Durban is the co-CEO of private equity firm Silver Lake and an ally of Musk.
Twitter said Durban failed to secure the support of a majority vote in the re-election held earlier this week due to “the voting policies of certain institutional investors regarding board service limitations”.
Twitter said Durban, which serves on the boards of six other companies, has agreed to reduce its board-serving commitments to no more than five public company boards by May 25, 2023. The social media company added that Durban was an “active member” of the board of directors. management and bringing “unparalleled operational knowledge to the industry”.