Elon Musk Twitter deal hit with more SEC scrutiny
The regulator is already investigating Musk's delayed disclosure of his 9.2% Twitter stake
Tesla CEO Elon Musk is facing additional scrutiny from the U.S. Securities and Exchange Commission over his tweets and disclosures related to his controversial $44 billion acquisition of Twitter.
On June 2, the SEC asked Musk about amending a 13D regulatory filing in relation to a May 17 tweet in which he said the deal "cannot move forward" until the social media giant provided evidence that spam and fake accounts make up less than 5% of its users.
A form 13D is required whenever a person or group holds more than 5% of a company. Musk owns 9.2% of Twitter stock.
"The term ‘cannot’ suggests that Mr. Musk and his affiliates are exercising a legal right under the terms of the merger agreement to suspend completion of the acquisition of Twitter or otherwise do not intend to complete the acquisition," a letter from the SEC's office of mergers and acquisitions states. "Yet, we note that the Schedule 13D has not been amended to reflect the apparent material change that has occurred to the facts previously reported under Item 4 of Schedule."
The SEC demanded "a clear statement as to Mr. Musk’s current plans or proposals with respect to the acquisition of Twitter."
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Musk attorney Mike Ringler responded in a letter on June 7 saying the billionaire did not believe the tweet "triggered any required amendment to his previously filed Schedule 13D."
"Despite Mr. Musk’s desire to obtain information to evaluate the potential spam and fake accounts, there was no material change to Mr. Musk’s plans and proposals regarding the proposed transaction at such time," Ringler added.
"The Schedule 13D, as amended, continues to reflect Mr. Musk’s current plans and proposals with respect to the pending acquisition. Mr. Musk will continue to be mindful of the requirements under Rule 13d-2, and Mr. Musk will amend his Schedule 13D to reflect any material changes in the facts set forth therein."
The latest SEC inquiry into Musk's Twitter deal comes after the agency launched an investigation in May over a delayed disclosure of his 9.2% Twitter stake. The law requires shareholders who acquire a more than 5% stake in a company to disclose their ownership within 10 days of reaching the threshold.
According to Musk's regulatory filings, he crossed the threshold on March 14. However, the purchases were not disclosed publicly until April 4.
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A day after responding to the SEC's inquiry, Musk's team notified Twitter that he would be abandoning the deal. They claimed Twitter is "in material breach of multiple provisions" of the agreement and "appears to have made false and misleading representations" when it accepted Musk’s acquisition offer on April 25.
On July 10, Twitter responded, saying Musk and his team's "purported termination" of the deal is ‘invalid and wrongful’ and constitutes a ‘repudiation of their obligations under the agreement.’"
Two days later, the company officially filed a lawsuit against Musk in the Delaware Court of Chancery in an effort to force him to follow through on the deal. The complaint accuses Musk of refusing "to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests."
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This is not the first time Musk's tweets have drawn scrutiny from the SEC.
In 2018, the regulator charged Musk with securities fraud over a tweet in which he claimed to have funding secured to take Tesla private. Musk and Tesla entered into a $40 million settlement with the agency, which requires Musk to have all tweets about the electric vehicle maker approved by a lawyer before publishing.
In April, a judge denied Musk's bid to scrap the settlement. Reuters reported that Musk has since filed an appeal to overturn the judge's decision.