As Elon Musk and Twitter prepare to go to court, a new player has entered the drama.
The U.S Securities and Exchange Commission (SEC) is now reviewing Musk’s communications to the public, looking to see if the billionaire engaged in violations of financial disclosure rules.
On Thursday the SEC published two letters, revealing it is examining Mr. Musk’s tweets, especially a post on May 17th from Tesla’s CEO. In a letter the SEC wrote, “We note that on May 17, 2022, Elon R. Musk referred to the pending acquisition of Twitter, Inc. and publicly stated via his Twitter feed that “[t]his deal cannot move forward. The term ‘cannot’ suggests that Mr. Musk and his affiliates are exercising a legal right under the terms of the merger agreement to suspend completion of the acquisition of Twitter or otherwise do not intend to complete the acquisition.”
The regulator asserts this statement should have prompted an amendment to a previous document filed with the SEC.
The SEC demanded, “Provide us with a written analysis in support of any conclusion that an amendment is not required.”
The SEC also released the response from Musk’s attorneys in a second letter, dated June 7th. Musk’s attorneys at Skadden, Arps, Slate, Meagher & Flom llp, asserting there was no need to file amended documents. They wrote, “Mr. Musk does not believe, however, that the May 17, 2022 social media posts regarding spam and fake accounts on Twitter Inc.’s platform triggered any required amendment… Despite Mr. Musk’s desire to obtain information to evaluate the potential spam and fake accounts, there was no material change to Mr. Musk’s plans and proposals regarding the proposed transaction at such time.”
This new investigation comes on the heels of a previous investigation into whether Musk used the wrong form to announce his acquisition of 9.1% of Twitter in early April.
In its letter the SEC expresses irritation it previously communicated its requests to Musk’s lawyers by telephone on May 18th, but received no response, and so was forced to reissue its communication by mail. The SEC also notes it reserves the right to make all communications public, saying, “We may decide to release publicly (…) all correspondence, including this letter, relating to the review of your filing.”
Musk has previously clashed with the SEC over his tweets. In 2018 he signed an agreement with the SEC after he issued a tweet saying he had secured funding to take Tesla private. The SEC concluded he had merely broached the topic of funding with people, leading to him paying a $20 million fine and assenting to having all of his tweets about any material fact regarding Tesla to be reviewed by a company lawyer.
In April, Musk sought to have the limitation on his tweeting removed, saying it violated his freedom of speech, but a New York judge disagreed. “None of the arguments hold water,” Judge Lewis J. Liman of the U.S. District Court for the Southern District of New York ruled.
