Elon Musk is Now a Twitter Board Member with 9.2% Stake: SEC Showdown?

On Monday, Elon Musk disclosed his Twitter (TWTR) shares acquisition. According to the SEC filing, he bought 73,486,938 TWTR shares worth about $2.4 billion on March 14, 2022, which gives him 9.2% of the platform’s stake. Comparatively, this is four times more than Jack Dorsey’s stake of 2.25%, the former CEO who founded Twitter and grew it into the social media giant it is today with nearly 400 million users.

With so much voting power acquired, Musk became the largest individual shareholder and subsequently a board member. The present Twitter CEO, Parag Agrawal, took to publicly welcoming Elon Musk, but not before taking a jab at him by describing him as an “intense critic“.

Elon Musk Not Happy with Twitter’s Alleged Free Speech Suppression

Those who have been paying attention to Elon Musk’s timeline are only partially surprised at why Agrawal would pick those epithets. In the last two weeks, the Tesla/SpaceX CEO hinted multiple times that he is not pleased with the mass suppression of free speech on the platform. From one such poll, it appears that, out of 2m votes, 70% agreed with him.

Likewise, after Musk disclosed his powerful Twitter status that goes beyond mere blue checkmarks, other polls show a similar percentage of what he should do next.

Interestingly, after Dorsey stepped down, it was hedge fund manager Paul Singer of Elliot Management ($34B AuM) who likely installed Agrawal as the current Twitter CEO. Not many remember that Singer tried to oust Dorsey in 2020 through a shareholder campaign. However, instead of Dorsey stepping down then, Elliott and its ally Silver Lake Partners received three Twitter board seats as a compromise.

Since then, Twitter adopted a lax interpretation of free speech, with Agrawal explicitly saying that the platform doesn’t abide by the First Amendment of the United States.

“Our role is not to be bound by the First Amendment, but our role is to serve a healthy public conversation and our moves are reflective of things that we believe lead to a healthier public conversation,”

Twitter CEO Parag Agrawal to MIT Technology Review

However what constitutes “healthier public conversation” diverges from one person to the next and many like Elon may not fully agree with Twitter’s definition. This could be reflected by the fact that Twitter’s shares jumped over 25% since Monday’s announcement or 54% since the day Musk acquired his 9.2% cut, on March 14th.

Such a jump is not a good look for Agrawal because Musk framed the stock acquisition beforehand as a matter of free speech. Interestingly, instead of opting to create a brand new platform as he once hinted at, Musk is heading to rework the existing one. This makes perfect sense given that network effect doesn’t allow for alternatives to grow nearly as much as one would expect.

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Is Musk on a Collision Course with the SEC, Again?

Having accrued over 80 million followers, Elon Musk is one of Twitter’s top personalities. However, even when he had less than twice that number, Musk had been known to use Twitter to boost meme coins, such as Dogecoin (DOGE). Outside of speculation that he may hold 27% of all Dogecoin, such an approach to public engagement brought the SEC knocking.

All the way back in 2018, the Securities and Exchange Commission (SEC) forced Musk to settle a fraud charge, after having tweeted a potential buyout of Tesla, triggering the stock to jump. Both Tesla and Musk had to pay $20 million each, with the stipulation that Musk’s tweets must be overseen by Tesla’s lawyers before getting published.

However, not a week after the settlement, Musk took to Twitter to mock the SEC, sarcastically pretending that the agency changed its name into something that is not quite flattering.

Furthermore, based on the settlement requirement, the SEC was not happy that Musk’s tweets about solar roof production and Tesla’s stock price went under the lawyers’ radar.

It appears that the SEC took notice of these incidents in internal correspondence with Tesla. The Wall Street Journal acquired access to one of the SEC letters. According to the WSJ report, the letter stated that Tesla:

“failed to enforce these procedures and controls despite repeated violations by Mr. Musk”, additionally noting that “Tesla has abdicated the duties required of it by the court’s order”.

No doubt, now that Elon Musk serves on Twitter’s board, he will become a target of even greater SEC scrutiny. Nonetheless, as long as his content cannot be interpreted as a violation of disclosure and stock price manipulation, it will be sufficient to avoid more token fines.

Of more importance will be his newly-found influence on the board, shared with Elliot Management and Silver Lake. Having already noted his disagreement with Agrawal’s policies, Musk’s ability to affect them will depend on his level of engagement from his “passive” stake.

Daniel Ives of Wedbush Securities equity research told FOX Business Monday that Musk’s move is just an opening gambit.

“We believe there is a better chance of us playing in the Masters this weekend than Musk staying a passive investor at 9%,” Ives noted. “The Street is reading this as a first move for Musk in an eventual active role at Twitter.”

However, the very hint at further moves, such as a Twitter buyout, may be enough for Agrawal to start considering whether a de facto public space should adhere to the US Constitution.

Update (11th April 2022) – Elon Musk has refused to join Twitter’s board.

Do you think Elon Musk will shield himself from Twitter’s aggressive censorship, or will this extend to the entire platform? Let us know in the comments below.