Axios reports that the U.S. Securities and Exchange Commission (SEC) has confirmed that it has launched an investigation into Musk regarding his Twitter shares.
The investigation has been ongoing since early April, which is when Musk revealed that he had purchased a 9.2% stake in Twitter. The SEC simply confirmed the ongoing investigation on Friday.
The investigation has to do with the timing of Musk’s disclosure of his 9.2% Twitter ownership.
That disclosure came on April 4. But, it turns out that, according to Musk himself, he had obtained that 9.2% stake in Twitter on March 14. That’s a difference of 21 days from acquisition to disclosure.
Axios explains the problem:
Those who buy 5% or more of a publicly traded company must legally disclose that ownership within 10 days of acquisition. Musk, however, says he reached the threshold on March 14, but didn’t disclose until 21 days later on April 4.
This is part of the reason why Musk is being investigated. But, there’s more.
The wrong form?
The SEC also is looking into the form that Musk used to make his disclosure, which is a “13G” form. The SEC wants to know why Musk used this form rather than a “13D” form.
What’s the difference? According to Axios, a “13G” form “is meant for passive investors,” whereas a “13D” form “would be for activist investors (including those with interest in making a takeover offer).”
The argument is that, given that Musk went on to try to buy Twitter, he should have filed the “13D” form.
What of it?
SEC has asked for a response from Musk. The agency wants an explanation for both the timing of the disclosure as well as the use of the “13G” form. It appears that Musk has yet to provide that response.
The big question is what kind of penalties Musk might face here. And, the answer is not exactly clear. But, one thing that the Daily Wire reports is that it is unlikely that the SEC would be able to stop Musk from taking over Twitter.
At this point, that acquisition has been on hold as Musk is investigating the number of spam accounts on the social media site.