Elon Musk was late filing a form and made $208 million

Individual shareholders, Pritchard said, have no right to sue Musk, because the public disclosure is a regulatory requirement and not something he legally owes to Twitter’s shareholders.

Musk did not respond to requests for comment, nor did securities lawyers working for him. The SEC declined to comment.

SEC chairman Gary Gensler has proposed new rules that would halve the amount of time investors have to disclose after crossing the 5 per cent threshold, from 10 days to five.

“It is important that shareholders get that information sooner,” he said in a statement.

Musk has drawn scrutiny from the SEC in the past. In 2018, he entered into a consent decree with the SEC for allegedly misleading investors when he tweeted that he had gathered enough funding to take Tesla, of which he is chief executive, private. Musk paid a $US20 million fine and agreed to step down as chairman and vet his tweets with lawyers. Last month, he asked the SEC to scrap that agreement.

Musk has continued to push the rules, polling his Twitter followers in November on whether he should sell a 10 per cent stake in Tesla, potentially influencing the market.

The Wall Street Journal also reported in February that the SEC was investigating a stock sale by Musk’s brother a day before that tweet.

It isn’t clear why Musk, who is the world’s richest man, valued at $US276 billion according to the Bloomberg Billionaires Index, missed the deadline. The gains of $US156 million represent a drop in the bucket for the PayPal co-founder, who also owns and runs rocket company SpaceX.

In addition to missing the deadline to disclose his position, Musk may have also filed a misleading report to the SEC, claiming he is a “passive investor” with no aims to change or influence ownership of the company.

Musk polled his Twitter followers on March 25 about whether they thought Twitter was protecting free speech. “The results of this poll will be important. Please vote carefully.” By that time, he had already bought 63.5 million shares of the company’s stock.

The disregard for securities laws – whether intentional or accidental – highlights the way billionaires and powerful individuals can skirt federal rules and even tax code to continue to build their wealth.

Securities lawyers and finance experts say that if Musk had been planning to join the board or to influence the company’s decision-making by leveraging the voting power of his stock, he probably should have filed a different disclosure indicating he was an “active investor”.

When Musk was appointed to Twitter’s board of directors on Tuesday, he filed a different form, changing his status from a passive investor to an “active” one.

The potential abuse of passive investor status has been a subject of debate in securities law for two decades, and Musk’s choice has drawn more scrutiny to an area of finance the SEC has rarely policed.

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The disclosure requirements were first implemented in 1968 to help warn investors of a potential hostile takeover bid, an increasingly common occurrence at the time.

Activist investors often buy up as much stock as possible in secret, using several brokerage firms to cover their tracks. The secrecy typically serves two purposes: to keep the share price from going up, which would make the effort prohibitively expensive, and to keep the company’s board in the dark as long as possible.

For now, Musk has agreed to limit his stake in the company to 14.9 per cent, so long as he sits on the board.

The Washington Post