Elon Musk has gotten out of control, even the US Securities and Exchange Commission is afraid?

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2022-05-22 15:08:32

When Elon Musk announced he was temporarily postponing the $44 billion takeover of Twitter on Friday, the move created the familiar “twitch” for the stock market.

Once again, the Tesla CEO used a brief tweet to post information that has the potential to stir the market. Once again, Elon Musk’s relaxed behavior on Wall Street has raised questions about whether he is in full compliance with securities regulations and laws.

Elon Musk’s 2018 tweets, when he announced that he was considering making Tesla a private company, “have enough financial resources” to lead to a lawsuit from the SEC. As a result, Musk had to pay a fine and was barred from being Tesla’s chairman for three years.

Since then, the authorities have calmed down. Meanwhile, Musk has been constantly provoking and testing the limits of settlements. “They act very carefully, and Elon Musk takes advantage of that,” said David Rosenfeld, a professor at Northern Illinois University.

However, Musk’s recent actions may end up subjecting him to harsher punishments – at least if lawmakers so wish. According to John Coffee, a law expert at Columbia University, he could put himself at risk with the SEC’s “unequivocal choice”: Suspend or completely deny the right to be an employee or director. director of a public company.

If Musk is at risk of legal action, it’s unclear if this will come directly from the tweets that sent Twitter shares lower on Friday. In that tweet, Musk questioned whether there were more fake accounts on twitter than the company reported, and this blew $7 billion off Twitter’s market cap. A tweet two hours later said that he remained committed to the Twitter acquisition and that it had cut Twitter’s lost market capitalization in half.

The post has been widely viewed on Wall Street as a signal that Musk has softened Twitter in preparation for trying to negotiate a lower takeover price, sending the social media company’s shares up. 25% off the price he agreed to buy.

Legal experts argue that the SEC will not be able to handle a stock price distortion case involving tweets, lack of false claims by Musk or clear evidence that he was on purpose. push down stock prices.

Allegations of stock price manipulation are notoriously difficult to prove. “The SEC and individual litigants have generally not had great success with allegations of stock price manipulation“, according to James Cox, a professor of law at Duke University.In this case, it can be difficult to prove a false claim as Musk has repeatedly said that he is concerned about the number of bots on twitter.“.

However, as Musk continues to scoff, overstepping the bounds of securities laws, the SEC has another tool that can make things clearer.

One is the 2018 deal, which requires that whenever Musk makes a potentially market-changing statement, it must be pre-examined by a Tesla attorney. Musk only needs legal clearance for things that affect Tesla’s stock price.

However, Friday’s tweet about Twitter could be different, according to Henry Hu, a former SEC official and now a law professor at the University of Texas. They may have allayed concerns among Tesla shareholders that Musk would be distracted from owning Twitter, or that funding the deal could affect Tesla’s stock price, although it’s unclear if Musk will delete the deal. tweet with a lawyer or not.

The second legal threat stems from Musk’s revelations about his investment in Twitter. Musk secretly amassed a 9% stake, surpassing the 5% threshold of disclosure requirements on March 14. However, these shares were not publicly reported until April 4, exceeding the 10-day grace period allowed under federal law.

Musk’s initial disclosure also described his investment as passive – although a day later a second filing revised this and said he had agreed to sit on Twitter’s board. . Continuing over the next 10 days, he reversed course and made an offer to buy the company.

Some legal experts are still surprised that the SEC – which is said to be investigating the matter – has yet to charge Musk with the late disclosure. The SEC did not respond to a request for comment on the existence of the investigation. Cox said: “I’m totally surprised that the SEC didn’t go to federal court to file a lawsuit” about Musk’s belated disclosure.

However, a former senior SEC official said the regulator may be delaying action while it is only a matter of time to see if there is any evidence of potential flaws in the details. Musk’s disclosure or not.

However, there is still the question of how aggressively the SEC will pursue a case, even if it believes there is an answer. Following Musk’s “funding guaranteed” tweet, the agency initially sought to bar Musk from serving as a director or employee of any public company. But then, the SEC agreed to a softer deal.

The former SEC official said the agency may not have banned Musk in the end, who became “very important and indispensable for Tesla“, to avoid affecting the company’s shareholders. Unlike company leaders like Apple’s Steve Jobs, Microsoft’s Bill Gates or Google’s Eric Schmidt, Musk’s potential successor remains unclear. .

Jay Clayton, then chairman of the SEC, appeared to confirm that when he announced the settlement. “It is often the case that the interests of common shareholders – who are not involved in misconduct – are intertwined with the interests of the offending officials and the company.“. He added that “The skills and support of certain individuals can be important to a company’s future success.“.

According to some, the fear of hurting Tesla’s shareholders has further dampened the SEC’s actions. “I suspect that continues to annoy the SEC in some way, as they have a real problem with Musk’s behavior but feel ‘gotten up’ with what they can or should do.”, said a former senior official of the agency.

Has Musk become so important to a company that the SEC is afraid to do something about it?‘, the official questioned. Sufficient is essential for a properly functioning market.”Broadly speaking, the SEC’s main reason for existence is at stake” said Hu.

Source: Financial Times

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