Elon Musk Investigated Over Late Filing of Twitter Stock Purchase, While FTC Looks at Company Buyout for Antitrust Violation
When an investor buys more than 5% of a company’s shares, they are required to submit a public form as a show to shareholders of the investor’s potential intent to seek control of — or influence — that company.
Musk’s Twitter holdings passed the 5% threshold on March 14, so he was required to disclose his share percentage by March 24 under SEC regulations. He became Twitter’s largest shareholder after March 24, when he bought approximately $513 million in stock for between $38.20 and $40.31 a share and became an owner of 9.2% of the company. Musk did not make his relevant disclosure filing until April 4, per the WSJ.
If Musk had reported that his trades had passed the 5% threshold, the market would have been aware of his increasing stake ownership, which could have pushed share prices up. Although the SEC and Musk’s lawyers have yet to comment on the matter, what is known is that by not reporting that his trades had crossed the 5% share threshold, Musk probably saved more than $143 million, according to an estimate by University of Pennsylvania accounting professor Daniel Taylor.
“The case is easy. It’s straightforward. But whether they’re going to pick that battle with Elon is another question,” said Dr. Taylor.
Tesla Takes a Market Dive Due to Supply Chain Issues, Market Volatility
This investigation comes in the same week where Musk lost — according to estimates by Forbes — $31.4 billion in personal wealth — as shares of Tesla fell 8% and its market capitalization collapsed by 15%.
The economic downturn for Tesla has been partially attributed to the current economic and production situation in China. China has a firm “zero-COVID” policy marked by quick lockdowns, which has already resulted in factory closures, crippling supply chain issues and tech stock market volatility. Musk assuaged investor anxieties while speaking at the Financial Times’ Future of the Car Summit on May 10, claiming that he has talked to the Chinese government about the lockdowns. However, he stated that Tesla might have to “stop taking orders for anything beyond a certain period of time.”
In other news, an anonymous source reporting to The Wall Street Journal is claiming that the Federal Trade Commission (FTC) is looking into whether Musk violated a law pertaining to the required reporting of large transactions to antitrust-enforcement agencies concerning his Twitter investment.
To give ample time for the government to review possible conflicts with competitors, it is general practice for an investor to wait 30 days after filing to buy more shares. If an investor’s assets exceed $20 million — and the expected purchase exceeds the general spending threshold of (normally) $92 million — then the investor is obligated to report. Passive investors who hold less than 10% of a company’s stock are exempted from this requirement, however.
There is little doubt that Musk’s existing assets and share purchase could be subject to antitrust filing requirements, but whether the FTC wants to move forward with the alleged violations — and pursue imposing a maximum $43,792 per day fine on him — is something that, as of yet, is unknown.
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