The U.S. Securities and Exchange Commission (SEC) is looking into Tesla Chief Executive Officer Elon Musk’s disclosure of his stake in Twitter Inc in early April, according to a letter the agency sent to him that month.
In the letter, now made public by the SEC, the regulator asked Musk why it appears he did not file the required paperwork within 10 days of the acquisition.
SEC also questioned why, when Musk did disclose his stake, he used a form meant for passive investors while he was openly questioning Twitter’s policies around free speech.
Specifically, the SEC asked Musk to explain why he opted to initially file a “13G” disclosure form, which is meant for investors who plan to hold their shares passively instead of a “13D” form, which is for activist investors who intend influence management and policies of the company.
He later amended the filing. Musk was offered a board seat shortly after his initial disclosure and has since gone on to attempt to buy the company outright in a $44 billion deal to take it private.
Spokespeople for Musk did not immediately respond to a request for comment. A SEC spokesperson declined to comment.
Separately, Twitter said in a filing Friday it was not accepting the resignation of Egon Durban, a Musk ally, from its board.
Two days earlier, Twitter shareholders had blocked his re-election, but the company said he brought “unparalleled operational knowledge of the industry” and instead he would reduce his board roles elsewhere.
Outside experts had previously said Musk’s late filing and apparently improper paperwork could attract the attention of the SEC, which has sparred with Musk in the past.
But the financial consequences for the world’s richest man could be limited, as fines for such a misstep would likely rise to a few hundred thousand dollars, according to outside experts. And others were skeptical it could endanger Musk’s efforts to acquire Twitter.
“I think from that investigation standpoint, the SEC is going to have a pretty strong case that he’s violated securities laws,” said Josh White, a finance professor at Vanderbilt University who previously worked at the SEC as a financial economist.
However, he added it “would be disastrous if [the SEC] said, well, this Twitter deal is on hold because Musk filed the wrong form.”
“Twitter stock price would instantly drop … I don’t think that the Commission has an interest in necessarily standing in the way of the deal.”
The SEC’s letter is dated the same day Musk disclosed a 9.2% stake in Twitter. The billionaire has been sued by investors claiming he manipulated the company’s stock price downward and profited by not disclosing his investment on time.
The Tesla Inc chief executive officer has landed in trouble with the SEC before when the agency sued him in 2018 after he tweeted he had “funding secured” to potentially take the electric car company private at $420 per share. In reality, a buyout was not close.
However, Reuters has reported that the SEC has previously been reluctant to take Musk to court over perceived violations of the resulting settlement out of concern they might lose the case, and instead has opted to simply urge him to comply.
Shares of Tesla were up 5.75% in midday trading, while Twitter shares were up 2.2%.
