Elon Musk is being sued over his purchase of Twitter (NYSE: TWTR) stock, and this is one of those things that just shouldn’t need to be done. It’s one of those shotgun meet foot moments which make dealing with Musk and his enthusiasms so difficult in a stock market or a public company listed on one.
We do know that Musk has bought into Twitter. He now owns a just under 10% stake. Well, assuming that the reporting is up to date, that is, as it should be. We’ve also had that interesting dance of him joining the board and then not joining it. The net result of that is that Musk is no longer bound by the standstill agreement. That was the agreement that he’d not increase his stake in Twitter to more than 14.99 %. Whether he’s ever had any intention of doing so is another matter and whether he does now is again unknown.
But what Musk has – again – not fully grasped is that while changing the world, as he is, it’s still necessary to obey the little rules. It’s as with the advice to criminals – no, he isn’t one, don’t be silly – to obey all the stuff about parking and speeding and so on, only break the really big one rule that is the crime being aimed at.
Here the problem is that the SEC has disclosure limits. If you buy a stake above a certain size in a company, then you’ve got to declare it. If you own over 5% then within 10 days of going over 5% then you’ve got to declare it. Musk owned 5% of Twitter by March 14. The stake wasn’t disclosed until April 4.
At which point Musk is being sued for creating a false market (this is what we would call it in London at least) in Twitter shares. For, if the market more generally knew about Musk’s stake building then the price of Twitter shares would have been higher. Fewer people would have sold them – and it would have been more expensive for Musk to build his stake from that 5% to that just under 10%.
This doesn’t particularly, have any effect on the value of Twitter stock. It’s not something that’s to do with the company, it’s to do with Elon Musk’s actions. But it does reflect on the difficulty that outside stockholders do have in companies where Musk is a major player. As with the SEC action on his comments about Tesla (NASDAQ: TSLA) and the takeover that had the financing lined up – ironically, comments on Twitter. Musk is clearly a business genius but given that he doesn’t always play by the same stock market rules as everyone else is supposed to we can’t – or perhaps should weight our responses by – always use the more normal methods of stock market valuations.
As for Musk himself, this is just one of those introduce Mr. Foot to Mr. Shotgun moments. There’s really no need to have done this and he can afford the legal advice which would have led to announcing on time.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.