Elon Musk is sowing heartburn among Twitter’s employees and investors with his latest bluster over his plans for the social media platform. But the billionaire’s demand that the company prove it isn’t overrun by bots before he agrees to buy it is unlikely to earn Musk any new headaches from federal regulators, securities law experts said.
Musk may be invoking the issue of Twitter’s fake users only to negotiate a better price than the $44 billion he has offered for the company — or as an excuse to walk away from the deal altogether. But the Securities and Exchange Commission would have a difficult time proving that Musk has been criticizing the company solely to depress its stock price, given that the concerns he is raising about fake accounts appear legitimate, legal experts agreed.
“If Mr. Musk is speaking out about concerns about the company or its disclosures for the ultimate purpose of possibly negotiating a better price, but those concerns are well-founded, then a perception of market manipulation would be nothing more than speculation,” rather than a legal violation, said Jacob Frankel, a former SEC enforcement lawyer now with Dickinson Wright.
Frankel said that if Musk is making “materially false and misleading statements” to drive down Twitter’s value, “that would be something of interest to the SEC. I just don’t think there’s any evidence of that.”
Musk has a history of clashing with the investor protection agency. He paid a $20 million fine in 2018 and agreed to step down as chairman of the electric carmaker Tesla to settle charges he misled investors when he tweeted he had secured funding to take that company private. And his maneuvering around Twitter has landed him in hot water with the SEC again. The agency is investigating his late filing last month of a form required of investors who buy more than 5 percent of a company, according to the Wall Street Journal.
The SEC declined to comment.
“As long as he has a factual basis for saying what he’s saying, I don’t think this is going to be actionable by the SEC or anybody else,” said James Cox, a Duke University professor of corporate and securities law. “It’s entirely possible that he’s doing this to try to drive down the share price because he’s having buyer’s remorse, and it has very little to do with the bots. But the difficulty in proving that, I believe, is insurmountable.”
Donald Langevoort, who teaches securities regulation at Georgetown Law, agreed that proving “manipulation is a stretch here for a variety of reasons.” Langevoort said the agency has a straightforward case to make against Musk for not filing his disclosure report on time as he amassed a major stake in Twitter. Nevertheless, he said, “given Musk’s wealth, it’s hard to imagine what the penalty would be that would amount to anything more than a slap on the wrist.”