Reactions varied last month when it was reported that Elon Musk’s offer to buy Twitter had been accepted. Musk has promised more freedom on the platform, causing celebration among conservatives and worry among leftists.
However, public opinion isn’t the only thing that Musk has to worry about. As a new report states that federal regulators are taking a look at the deal as well, and what they find could spell trouble.
Report says Musk waited too long to disclose stock purchase
According to an article published by the Wall Street Journal on Wednesday, the Securities and Exchange Commission (SEC) has questions about when Musk disclosed last month that he had made a substantial purchase of Twitter stock.
Investors are required to submit a filing when they purchase more than 5% of a publicly traded company’s voting class shares.
The purpose of this rule is to provide notice to other investors that a particular stockholder may be attempting to gain additional influence in a corporation or take it over entirely, something Musk is aiming to do.
However, the Journal already reported that Musk exceeded the 5% ownership threshold on March 14 and thus should have turned in a filing on March 24.
This latest Journal piece cites anonymous sources said to be familiar with the matter who say SEC regulators want to know why it took so long for him to disclose his Twitter stock purchase, only doing so on April 4.
Musk could face a lawsuit
While neither SEC officials or Musks’ attorney’s were willing to comment on the story, University of Pennsylvania accounting professor Daniel Taylor argues that the billionaire had a powerful financial incentive to keep his move secret as long as possible.
Taylor estimates that Musk saved more than $143 million by buying stock before the ensuing publicity drove up Twitter’s stock price.
One potential outcome would be for the SEC to file a lawsuit against Musk over the matter and seek fines of up to $43,792 per day.
Still, the Journal noted that the SEC may well drop its investigation of Musk, adding that even if the agency brings a civil suit against him then it is still unlikely to derail his Twitter purchase plans.
Taylor agreed that the SEC may not move forward, saying, “The case is easy. It’s straightforward. But whether they’re going to pick that battle with Elon is another question.”