According to a 13G filing on March 14, 2022, Tesla Inc.'s (TSLA) Chief Executive Officer (CEO) Elon Musk has purchased a 9.2% stake in Twitter Inc. (TWTR). The purchase amounts to nearly 73 million shares, worth around $3 billion. Twitter's stock price rose by 25% in premarket trading after the news broke.
- Elon Musk has bought a 9.2% stake in Twitter.
- Musk's tweets have moved Tesla's price, actions that have put them under SEC scrutiny.
- As per a 2018 SEC ruling, Musk has to get his tweets pre-approved to protect investors.
- Musk's tweets on cryptocurrencies have also caused their prices to spike and plummet.
Musk's acquisition of Twitter stock adds to the executive's saga involving the social media company. His own tweets have been a frequent object of review by the Securities and Exchange Commission (SEC), since the company announced in 2013 that much of the material information of interest to shareholders would be announced on Musk's Twitter account. In 2018, the SEC found that Musk's disclosure controls and procedures were inadequate, as his tweets about taking the shares private were found to have moved the stock price. In addition to a penalty, Tesla and Musk settled the probe by appointing two independent directors, adding processes to ensure controls and disclosure procedures for Musk's tweets, and removing Musk as Tesla's chairman. Musk also agreed to get his tweets cleared before posting as a direct result of the agreement.
Since the settlement, the SEC has repeatedly probed Musk's tweets about the company's production, stock price, and other material information.
The matter has boiled down to whether all executive communication should be regulated by the SEC. The SEC maintains that for a company to comply with Rule 13a-15, all executive communication would need to come under its disclosure controls and procedures. According to this rule, any tweet that contains information that should have been disclosed through an SEC filing, such as a 10-K or 10-Q, must be cleared in advance.
However, the SEC has been unable to conclusively affirm that any of Musk's tweets fall under the jurisdiction of that rule. Added to that was the problem of categorizing a Twitter poll as a form of communication that would be governed by the SEC.
Musk's 9.2% passive stake in Twitter makes him its largest shareholder. According to Wedbush analyst Daniel Ives, Musk may follow up with active ownership as Twitter becomes more integral to Musk's communications to Tesla's investors.