Federal investigators are probing entrepreneur Elon Musk’s disclosure last month that he was purchasing a 9.2 percent stake in Twitter, the Securities and Exchange Commission confirmed Friday.
A letter from the SEC dated April 4 sought answers from Musk regarding the timing of his disclosure, as well as its contents.
“Those who buy 5% or more of a publicly traded company must legally disclose that ownership within 10 days of acquisition. Musk, however, says he reached the threshold on March 14, but didn’t disclose until 21 days later on April 4,” Axios reported.
“The SEC also wants to know why Musk filed a ’13G’ form, which is meant for passive investors, rather than a ’13D’ form that would be for activist investors (including those with interest in making a takeover offer).”
While the SEC said Musk filed a form for passive investors, he has made public statements questioning Twitter’s adherence to “free speech principles.”
“Musk changed his investment status to active the following day,” on April 5, according to The Washington Post.
Later, Musk reached a deal to buy the social media platform for $44 billion, though the deal’s finalization has been complicated by Musk’s claims that the platform is underestimating how many of its users are automated “bots.”
The SEC confirmed that it was investigating Musk’s disclosure more than two weeks after The Wall Street Journal first reported the news.
“The disclosure functions as an early sign to shareholders and companies that a significant investor could seek to control or influence a company,” the outlet said at the time.
“Mr. Musk likely saved more than $143 million by not reporting that his trades had crossed the 5% threshold, said Daniel Taylor, a University of Pennsylvania accounting professor, since the share price could have been higher had the market known of the billionaire’s growing stake.”
However, Taylor said it was unclear if the SEC would actually file a regulatory lawsuit against Musk.
“The case is easy. It’s straightforward. But whether they’re going to pick that battle with Elon is another question,” Taylor told The Journal.
The investigation comes as Musk faces two other, separate lawsuits.
“A shareholder lawsuit against Mr. Musk over his tweet claiming he planned to take Tesla private is ongoing. Mr. Musk also faces a lawsuit from Twitter shareholders over his delayed disclosure about his purchases of the social media company’s stock,” The New York Times reported.