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Elon Musk May Have Broken The Law When He Bought His Twitter Shares

Elon Musk May Have Broken The Law When He Bought His Twitter Shares

Musk holds a 9.2 percent stake in Twitter, making him the largest single shareholder

Elon Musk may have broken federal law in his recent Twitter acquisition, experts have claimed.

In a recent filing with the US Securities and Exchange Commission (SEC), it was revealed the Tesla CEO now holds a 'passive' stake in the social media giant; more precisely, he owns 9.2 percent.

Nevertheless, that seemingly small figure makes him Twitter's largest single shareholder, with a higher stake than former chief Jack Dorsey, who stepped down last year.

Some experts believe Musk violated securities law by failing to notify the commission of his Twitter stake surpassing five percent.

It's noted that Musk reached five percent on 14 March, but only disclosed this publicly on Monday (4 April).

Why is there a law in place around this? Well, by delaying his disclosure forms, it would allow Musk to keep the stock price low while buying up shares at a lower price.

For reference, Twitter's share price soared by nearly 30 percent in the immediate wake of the news.

Musk's share reached 9.2 percent at just $39 (£30) per share, while shares are now priced at more than $50 (£38) each. It's believed he netted $156 million (£119m).

David Kass, a finance professor at University of Maryland’s business school, told The Washington Post: "I really don’t know what’s going through his mind. Was he ignorant or knowledgeable that he was violating securities law?"

Elon Musk.

However, this alleged violation will likely go practically unpunished for Musk.

If anything, he may be fined by the SEC for his negligence in the six-figure range - a small sum when you're worth $265 billion and the richest man in the world.

While the SEC would also be entitled to request Musk to hand over the money he amassed from the acquisition, it's unlikely this will ever come to pass.

Adam Pritchard, a professor of securities law at University of Michigan’s law school, said the commission 'would have to be really angry with him to try that because they would have a good chance of a court rejecting that argument'.

The grievances, if any, would lie solely with the SEC.

Twitter's shareholders could be annoyed, but they wouldn't have any legal course of action, as Musk had no obligation to them in his disclosure.

While it's unclear what will come of Musk's alleged violation, SEC Chairman Gary Gensler recently proposed reducing the time for investors to disclose their larger stake from 10 days to five days.

UNILAD has contacted Twitter and a representative for Elon Musk for comment.

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Featured Image Credit: Credit: Alamy

Topics: Elon Musk, Twitter, Social Media, US News, Technology