Elon Musk's Play for Corporate Governance at Twitter and Why SEC Penalties Won't Affect His Profits

Posted: April 19, 2022

Elon Musk has had a love/hate relationship with Twitter for quite some time. On one hand, Musk has 80 million followers and certainly enjoys tweeting out memes and his thoughts on certain issues. Whether or not intended, Musk’s influence on Twitter has manipulated market prices of stocks, cryptocurrencies and other equities. Musk’s tweets have landed him in hot water more than once. In recent months, it looks like tweeting isn’t enough for Musk anymore. Now, he actually wants control over Twitter. Musk has been buying up shares in an attempt to get more influence over the microblogging site. Let’s take a look at Elon Musk’s play for corporate governance at Twitter and why SEC penalties won’t affect his profits. What’s going on with Musk and Twitter? News broke in the first week of April that Elon Musk had acquired 9.6% of Twitter. He was all set to join the Board of Directors for the company and even received warm welcomes from CEO Parag Agrawal and founder Jack Dorsey. Musk spent a few days tweeting about potential changes he wanted to make to Twitter’s platform. Twitter stock jumped 30% on the news that Elon was joining the board. Then, in a sudden u-turn, it was announced that Musk would not be joining Twitter’s board. It was also revealed that Musk actually acquired his stake on March 14, a few weeks before he shared the news publicly. Musk is now currently facing a lawsuit from shareholders for delaying his announcement. Is Musk still joining Twitter’s Board? The last official announcement was that Musk will no longer be joining Twitter’s board. There is also a lot of speculation on what might be going on behind the scenes. For example, Musk could still be trying to buy up more of Twitter’s stock even if he’s not joining the board. If Musk joined Twitter’s board, he would only be able to purchase 14.9% of the company. By not joining the board, Musk can now buy up much stock if he chooses. This even leaves the door open for a potential hostile takeover of the company. Musk has since deleted most of his tweets about potential changes to Twitter and has stayed relatively quiet. He might also be regretting his decision to delay his filing as he now faces a lawsuit and potential SEC intervention. SEC Intervention The Securities and Exchange Commission has voiced concern over Musk’s delayed filing. Major investors, like Musk, are required to report new purchases as soon as they reach a certain threshold. This gives other investors time to react to the news. By delaying his filing, Musk was able to buy up more Twitter stock at a cheaper price. Then, when the news broke, he enjoyed a nice 30% price spike. Musk reportedly earned $156 million by delaying his filing. However, situations like this are tough for the SEC to navigate and it’s unlikely that they will be able to penalize Musk in a meaningful way. In the past, Musk was fined $40 million by the SEC over his Tweets about Tesla. If he were fined a similar amount for his delayed filing, it would still be less than a third of the profit that he made. While somewhat unethical, Elon's move was not only a win in terms of his yearly compensation, but also has afforded him newly found influence in the governance of Twitter as a corporate entity. To learn more about maximizing executive compensation, visit our Contact Page, or contact us directly by email at fglassner@veritasecc.com or by phone at 415-618-6060.