New York (CNN Business) – Elon Musk has faced questions from the US Securities and Exchange Commission about how and when he disclosed his large stake in Twitter last month, prior to agreeing to buy the social media company.
On April 4, the same day that Musk initially revealed he had bought up a more than 9% stake in Twitter (TWTR) and become the company’s largest shareholder, the SEC sent him a letter asking why he appeared to have delayed disclosing his stake in an apparent violation of securities law.
In its letter to Musk, which emerged Friday, the SEC asked him to “please advise why the [initial disclosure] does not appear to have been made within the required 10 days” from the date on which he acquired a stake in the company greater than 5%.
Musk’s Twitter stake topped 5% on March 14, according to a filing, in which case the public disclosure of that stake should have been made by March 24. Instead, Musk waited 21 days — and continued to amass shares in the company at an effective discount from what the stock would have traded at had such an announcement been made.
Musk’s delayed disclosure saved the billionaire around $143 million by keeping the share price lower than it might have been as he continued to buy shares, Daniel Taylor, a University of Pennsylvania accounting professor, has estimated.
“I think it could be laziness or the belief that rules don’t apply,” Taylor told CNN Business earlier this month. “But if you look at when the SEC enforces late filing, it’s relatively rare. From a cost-benefit basis, it makes sense not to file. Even if the cost for reporting late is a $100,000 fine or a multi-million-dollar fine, why wouldn’t he [delay filing]?”
The SEC also asked why Musk initially filed a disclosure meant for passive investors that do not plan to exercise their influence to make change at a company. Musk had previously made several comments on Twitter suggesting he felt changes needed to be made to the platform.
“Your response should address, among other things, your recent public statements on the Twitter platform regarding Twitter … including statements questioning whether Twitter (the issuer) rigorously adheres to’ ‘free speech principles,'” the SEC said in its letter.
Musk and the SEC did not immediately respond to requests for comment. Twitter declined to comment.
The letter adds another complicating factor to an already fraught deal. Musk in recent weeks has thrown the acquisition into question by saying it is “on hold” pending details on the number of spam accounts on the platform, despite waiving due diligence for the transaction. Twitter has said it remains “committed to completing the transaction on the agreed price and terms.”
The Tesla (TSLA) CEO has had a rocky history with the SEC. In 2018, Musk tweeted that he was “considering taking Tesla private at $420” and that he had “funding secured,” sparking a frenzy and sending shares in the automaker up to $371 from $342. The SEC later said the funding had, in fact, not been secured and sued Musk for misleading investors. Musk eventually settled with the SEC for $20 million and gave up his position as chairman of Tesla.
Musk tried to fight a provision of that settlement that requires him to have certain tweets about Tesla reviewed by lawyers before posting them — and has made a number of disparaging comments about the agency. But a judge last month refused to strike down the settlement, saying in his ruling that none of Musk’s “arguments hold water.”