Elon Musk’s Twitter investment raises new regulatory red flag

The chief executive of Tesla Inc. revealed that his 9.2% of holdings are required to file a form investors are planning to take control of when they buy more than 5% of the company’s stock, without any concerns. But the notice came several days late. It also did not include a standard certification that outlines an investor’s passive status.

Mr Musk did not respond to a request for comment on his filing.

The SEC has taken enforcement action in the past against some people who repeatedly missed the ownership-disclosure deadline. According to lawyers, his disclosure issues could hurt Musk in an ongoing legal wrangling with the SEC.

Mr Musk asked a federal judge last month to quash a fraud settlement he reached with securities regulators in 2018 that requires the company’s lawyers to publicize some of his Tesla-related tweets. He argued that the SEC is abusing social-media policy to continually scrutinize his statements, a claim the regulator denies. Lawyers said Mr Musk’s failure to file the required forms in a timely manner could harm his ability to convince the court that regulators are harassing him unnecessarily.

David Rosenfeld said, “He’s making all these claims that the SEC is harassing him and going after him for nothing, and if he goes ahead and violates a very straight rule, of course will not help his argument with the judge.” The former senior SEC enforcement attorney is now teaching law at Northern Illinois University.

In a filing on Monday, Mr Musk reported owning approximately 73.5 million shares of Twitter, representing a stake worth $2.9 billion based on Friday’s closing price. The disclosure said he owned more than 5% of the outstanding shares on Twitter shares as of March 14. Investors whose holding is more than 5% are required to report their holding within 10 calendar days.

Mr Musk reported the stake in 13G Report, a filing reserved for passive investors. Shareholders typically include a certification that states that they did not acquire securities to change or affect control of the issuing company. Mr Musk did not include that statement in his form. Instead, he simply wrote: “Not applicable.”

The SEC may also inquire about Mr. Musk’s self-declared stance as a passive shareholder. He did not disclose his stake before tweeting dissatisfaction with the company’s content-restraint policies in late March, when he questioned whether a new social-media platform was needed. That’s the kind of statement active investors sometimes make when they plan to move a company.

On March 25, 11 days after becoming the largest shareholder in Twitter, Mr. Musk tweeted a poll that said, “Free speech is essential to a functioning democracy. Do you believe that Twitter strictly adheres to this principle?” does?” He added in a follow-up tweet: “The results of this survey will be important. Please vote carefully.”

A few days later, he tweeted that he was giving “serious thought” to building a new social media platform, without disclosing specifics.

An SEC spokesperson did not return an email seeking comment. A lawyer for Mr Musk did not return calls seeking comment.

Later on Monday, Musk tweeted, asking, “Do you want an edit button?” Referencing a feature many Twitter users have requested. Twitter CEO Parag Agarwal tweeted, “The results of this survey will be important. Please vote carefully,” seemingly in reference to Mr. Musk’s March 25 tweet.

Howard E., a partner at the law firm Sullivan & Worcester LLP. Birkenblit said regulators could look into those tweets. His statements about Twitter’s speech policies do not clearly indicate a plan to influence or change Twitter’s control, Mr. Birkenblit said.

“He is not trying to influence the strategy of the board or the company. That would be his counterargument,” said Mr. Birkenblit. “Like any other shareholder, he is just voicing his opinion. Certainly, the SEC can question him and ask him to defend.”