Agency targets Musk’s disclosures about Twitter

The US Securities and Exchange Commission has broadened its inquiry into whether Elon Musk properly disclosed his investment in Twitter and his intentions for the social media company.

The agency raised questions about a tweet from Musk in May in which the billionaire claimed that his US$44 billion acquisition of Twitter “cannot move forward” because of spam on the platform. The tweet suggested Musk planned to abandon the deal, the SEC wrote in a letter to Musk’s lawyers in June. The letter was included in a filing Thursday.

The about-face was a material change to Twitter’s status that should have been disclosed to the agency and investors, but the required disclosure never materialised, the SEC wrote in its letter. The agency also demanded “a clear statement as to Mr Musk’s current plans or proposals with respect to the acquisition of Twitter.”

In response, Musk’s legal team said he had not changed his plans and was simply seeking more information from Twitter. “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,” Mike Ringler, a lawyer for Musk, wrote in a letter in June to the SEC.

Last week, Musk declared he would end his deal for Twitter because of the prevalence of spam on the platform. Twitter has disputed Musk’s claims and said spam makes up no more than 5 per cent of its active users. On Tuesday, the company sued Musk to force the acquisition through.

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The SEC began investigating Musk’s actions in April, when the billionaire became Twitter’s largest shareholder. In a securities document filed at the time, Musk indicated that his investment would be passive and that he did not intend to seek control of the company. But 10 days later, he began an aggressive campaign to acquire Twitter.

The SEC questioned whether Musk was truly a passive investor and whether he had disclosed his stake at the right time. The law requires shareholders who buy more than 5 per cent of a company’s shares to disclose their ownership within 10 days of reaching that threshold. In regulatory filings, Musk has said he crossed that threshold March 14 but did not make his purchases public until April 4.

The inquiry is not Musk’s first brush with the SEC. In 2018, the agency charged him with securities fraud over a tweet in which he claimed he had secured funding to take Tesla, his electric vehicle company, private. Musk and Tesla settled the charges for US$40 million. Under the terms of the agreement, Musk must run his tweets by a Tesla lawyer if the messages contain material statements about the carmaker.