Tesla Inc (NASDAQ:TSLA) CEO Elon Musk is yet again finding himself in a tough position with the SEC, as he may have violated federal law when initially reporting his 9.1% stake in Twitter (NYSE:TWTR).
What Happened: Under the Securities Exchange Act of 1934, a passive investor must file a 13G disclosing a 5% or more stake in a company within 10 days of acquiring the stake. The original document Musk filed on April 4 shows the stake was acquired by March 14. That's 21 days between when Musk acquired the stake and when he disclosed it.
Under Sections 13(d), 13(g) and 16(a) of the act, the SEC can fine individuals for failing to file the documents within the imposed timeframes.
The Context: “The reporting requirements in the federal securities laws are not mere suggestions, they are legal obligations that must be obeyed. Those who fail to do so run the risk of facing an SEC enforcement action," said former regional director of the SEC Andrew Calamari.
Musk may not care; another fine doled out by the SEC would amount to a slap on the wrist for the world's richest man.
Analysis: Did Elon Musk Violate SEC Rules With His Twitter Algorithm Poll?
Musk, who called the SEC the "Shortseller Enrichment Commission" in 2018 has come under fire from the commission numerous times. Let’s take a look at each time he’s had regulatory run-ins.
“Am considering taking Tesla private at $420. Funding secured”
This tweet, which ostensibly was meant as an ode to the cannabis culture holiday 4/20, eventually led to $40 million in fines and Musk being forced to step down as chairman at Tesla for three years.
“Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week. Deliveries for year still estimated to be about 400k.”
The tweet led the SEC to ask a federal judge to hold Musk in contempt, as the information in the tweet was material to shareholders.
“Tesla’s stock price is too high imo.”
Under the terms of the settlement agreement between Tesla and the SEC, Musk’s tweets were to be approved by Tesla’s lawyers before Musk tweeted about the company. While no fines came of this, the SEC sent letters to Tesla acknowledging the violation.
“Much is made lately from unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock. Do you support this?”
While the Twitter poll received 57.9% yes votes, it led to an investigation being opened on Elon and his brother Kimbal Musk for insider trading, as Kimbal sold $109 million worth of Tesla shares just one day before Elon polled Twitter users.
The SEC claimed Elon told Kimbal he planned to poll users of the social media platform before sending the tweet.