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The late disclosure of Ilona Maska’s Twitter bet is sparking an investigation by regulators

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The late disclosure of Ilona Maska's Twitter bet is sparking an investigation by regulators

WASHINGTON – Federal regulators are investigating the later disclosure of Ilona Mask last month about her significant stake in

Twitter Inc.,

TWTR -9.67%

according to people familiar with the issue, a backlog that allowed him to buy more shares without warning other shareholders about his property.

The Securities and Exchange Commission is checking Mr Mask’s late submission of a public form that investors must file if they buy more than 5% of the company’s shares, people said. Disclosure acts as an early sign for shareholders and companies that a significant investor may seek to control or influence a company.

The

Tesla Inc.

the CEO filed the application on April 4, at least 10 days after his share exceeded the disclosure point. Mr Musk did not publicly explain why he did not apply in time.

The SEC investigation has not been previously reported. A SEC spokesman declined to comment. Mr Mask’s lawyer did not respond to a message Wednesday asking for comment.

Mr Musk probably saved more than $ 143 million without reporting that his transactions exceeded the 5% threshold, said Daniel Taylor, a professor of accounting at the University of Pennsylvania, as the stock price could have been higher if the market had known about market share growth. billionaire. .

Investors crossing this border must submit a form to the SEC showing their stake within 10 days. Mr. Mask’s holdings exceeded 5% on March 14, according to securities documents, which means he had to reveal his fate until March 24 in accordance with SEC rules.

After March 24, Mr. Musk bought approximately $ 513 million worth of shares at a price of $ 38.20 to $ 40.31 per share, according to regulations. Total shopping hype forced him The largest individual shareholder is Twitter with 9.2% of its shares.

Based on Twitter’s closing price of $ 49.97 on April 4, the day Mr. Musk revealed his stake, he probably saved more than $ 143 million on those deals, Dr. Taylor estimated.

“It is easy. It’s simple. But whether they will fight Ilona is another question, ”said Dr. Taylor, referring to the prospect of a normative lawsuit against the open entrepreneur.

Elon Musk has forged close ties with Beijing to build Tesla’s business in China. Now that it is buying Twitter and focusing on free speech, the WSJ is examining how China has used the social networking platform to promote its views, and why this is a cause for concern. Photo illustration: Sharon Shea

The SEC can drop an investigation without filing a civil lawsuit, as not every investigation leads to formal action. The SEC’s lawsuit against Mr. Musk is unlikely to thwart the deal on Twitter because the company’s board of directors approved it, and the SEC typically has no authority to stop mergers or private transactions, said Jill E. Fish, a securities and corporate agent. Professor of Law, University of Pennsylvania.

Regulators could seek a court ruling banning Mr. Mask from voting on shares he acquired without proper disclosure, but the SEC is generally not seeking that remedy, Ms. Fish said.

In his initial form, which discloses his stock purchases on Twitter, Mr Musk said he is a passive shareholder, meaning he has no plans to take over Twitter or influence his management or business. The next day, he submitted another form that showed deeper involvement in the campaign, including April 4. proposes to join its board of directors.

Mr. Musk suggested a week later buy Twitter for $ 44 billion. The deal is scheduled to close later this year and must be approved by Twitter shareholders. SEC investigators, who searched Twitter for documents, are investigating whether Mr Mask’s initial disclosure should have revealed his investment plans in more detail, people said.

Mr. Musk is a prolific Twitter user who says the platform is exhausted under a corporate approach to moderating content that is censored by some users. “I hope that even my worst critics will remain on Twitter, because that means freedom of speech,” he tweeted on April 25.

He also has a long history of hostility with the SEC, the agency that sued him in September 2018 for allegedly fraudulent statements he made on Twitter that he had received funding to make Tesla private. Mr. Musk settled the matter paying a $ 20 million fine, relinquishing his role as chairman of Tesla, and agreeing to have the company’s lawyers pre-read some tweets about Tesla.

Recently, Mr. Musk denied a lie in 2018 that Tesla had gone private and said he felt the pressure to settle SEC investigation. Federal Judge last month rejected his motion to waive the deal and abandon the policy that his tweets are controlled by lawyers.

Separately, the Federal Trade Commission is investigating whether Mr. Musk has violated a law that requires companies and individuals to notify antitrust authorities of certain major transactions, according to a person familiar with the matter. After applying, an investor usually waits at least 30 days, which gives the government time to test the purchase to see if it is harming competition before buying additional shares.

Investor activists are subject to antitrust claims if their acquisition of the company’s stock exceeds the threshold – typically $ 92 million – and their existing assets exceed $ 20 million. Passive investors who hold less than 10% of the company’s shares and do not plan to participate in the management or administration of major business decisions are exempt from this requirement.

If the FTC alleges violations of the law, it may demand fines of up to $ 43,792 per day. The FTC investigation was previously reported by The Information.

Write Dave Michaels on dave.michaels@wsj.com

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