9.2% and the Master of Twitter
13Ds, Gs, and the SEC
I woke up yesterday to the headlines: Elon Musk buys 9.2% stake in Twitter, making him the largest shareholder. It’s 2022 and the Fed has hiked, but we have a long way to go before the absurdity ends.
Before I get into a theory on why I think he did it (because, c’mon, we all need a theory) it’s important to understand the context of Elon’s battle with the SEC over the past few years and, more importantly, how he’s spent the last six weeks escalating things.
Okay, this is a years-long thing I’ll try to walk you through quickly:
August 2018: We start this journey with the famous funding secured tweet.
September 2018: Musk settles with the SEC. Him and Tesla pay some money, he’s no longer Chairman of Tesla, and the most relevant stipulation for today’s story was that Tesla would have to “put in place a system for monitoring Musk’s statements to the public about the company, whether on Twitter, blog posts or any other medium.” This was the birth of what came to be known as Musk’s “Twitter Sitter” - the internal legal process in charge of overseeing any sensitive tweets.
February 2019: The next chapter. A few weeks after Tesla provided official guidance that in 2019 they’d produce between 360-400k cars, Musk tweeted that they’d produce around 500k (he walked the statement back four hours later):
April 4th, 2019: One of my favorite moments in the saga. Regarding the 500k tweet and the original Twitter Sitter settlement, U.S. District Judge Alison Nathan tells Musk and the SEC to put on their “reasonableness pants”:
April 26th 2019: In a joint effort to put on those reasonableness pants, the SEC and Musk came to a stricter settlement where there was a (un-exhaustive) list of topics he needed approval to tweet about, and now he would need to “obtain the pre-approval of any experienced securities lawyer.” Incredibly it took this clarification to specify the Twitter Sitter needed to know something about securities law.
Over the next couple of years, Elon kept tweeting but things were publicly pretty quiet. We’ve since found out that the SEC had quietly corresponded with Tesla over two tweets:
July 29th, 2019: One of the specific clarifications in the April 2019 settlement was that Elon could not tweet specific production numbers that had not previously been published. Elon tweeted specific production numbers that hadn’t been published.
Tesla’s response to that violation just captures everything about how absurd this entire arrangement was:
Tesla told the agency that Mr. Musk hadn’t submitted the tweet for review and that a committee had later determined it didn’t require authorization because it was “wholly aspirational,” according to the SEC’s account of its correspondence with the company.
May 1st, 2020: The entire fight has been over Musk making material statements about Tesla’s stock. Elon makes about a very material statement about Tesla’s stock.
That last one is truly the piece de resistance. Just imagine the SEC sitting there. Elon has already gone on national TV and said he doesn’t respect you and that is AFTER the first settlement.
He tweets a joke to the entire world about you sucking his cock (I felt the need to spell it out), but, of course, can maintain plausible deniability:
Judge Alison Nathan had insisted both parties act in good faith and just to be mature about the whole thing, yet....
The Twitter Poll
We all know there has been endless Elon tweeting of material things since the settlement. All the Doge and Bitcoin stuff. Humanoid robots. Stuff about competition. My favorite one was where he said an entire Hertz corporate partnership announcement had no contract associated with it. I mean, that was just so wild, yet we all just forgot about it. I still wonder how Hertz corporate folks reacted.
But the latest chapter is centered around this doozy:
There were endless theories about ‘why’ Musk was doing this, but whatever it was, saying you’ll sell 10% of your stock when you’re the largest shareholder of a company again...seems material. Elon Nation voted “Yes, sell your shares!”, and Elon obliged and started selling on November 8th, selling $16 billion over the next six seeks.
So that seems pretty crazy in itself, and Musk was apparently subpoenaed by the SEC about the tweet just 10 days later. But it gets so much better. The day before Elon tweeted the poll, it turns out his brother Kimbal made his biggest ever share sale (15% of his total holdings) at $1,229 a share.
The SEC is reportedly investigating whether this sale could constitute insider trading, because, well, timing. Musk told the FT that “Kimbal had no idea I was going to do a Twitter poll” and this was “simply more evidence of Stevie grinding his very tiny axe yet again” referring to the SEC’s Steven Buchholz.
It was in February that things started really escalating.
February 7th, 2022: Tesla disclosed they had received the subpoena about the November poll.
February 17th, 2022: Musk and his lawyer sent a letter to the ‘reasonableness pants’ judge saying the SEC was subjecting them to endless harassment and leaking of investigative information.
February 22nd, 2022: Elon tweets about the SEC being corrupt.
March 8th, 2022: Musk went even further, filing a motion asking to have the original 2018 settlement thrown out because he was ‘forced’ into it, it was chilling his freedom of expression and other bad things.
Okay, that was a lot of info above, and I’m sure most of you have followed Elon vs. the SEC in some capacity. But I think the timeline context is important to understand where we are today.
The most important question for me - Why did Musk start escalating in February?
The SEC had treated the 2018 settlement with kid gloves so why force their hand? Yes, there was a new insider trading investigation and some subpoenas, but why push this fight? Since the 2018 settlement, amidst that status quo detente, TSLA is up nearly 1750% and Tesla, the business, feels like it’s at its most stable operating performance ever. Why choose this moment to mess with the very circumstances that drove some of the greatest wealth creation in human history?
I had the chance to speak about this entire drama on March 10th on TechCheck - around the 3:05 mark in the video I laid three potential ways this could play out.
The SEC could fight tooth and nail just to maintain the status quo where they were not really regulating him. This seemed unlikely.
The SEC could agree the original settlement is void and then go after him over every single tweet since (even the original 420 tweet). This seemed most likely.
The most extreme possibility I saw was the SEC could try to get Elon Musk kicked off of Twitter.
I know, it sounds ridiculous that the SEC could try to stop Musk from tweeting at all.
But if someone uses their personal Twitter account to repeatedly break securities laws, it doesn’t seem too crazy that the SEC could force that person to stop tweeting. If someone specifically created a legally binding arrangement with the SEC, and then repeatedly violated that arrangement in order to break securities laws, it doesn’t seem like a 1st amendment issue if they lose their privilege to tweet. If someone’s personal account is inextricably linked to the company they run and are the face of, and they use that personal account to market their own company to the point they do not spend on marketing or have a PR department, it seems like that personal account is a significant asset and extension of the company.
But this is Elon and it’s 2022.
Something has been up since mid-February, and Elon was very methodically escalating things.
The title of the above segment was “If anyone could steamroll the SEC, it would be Elon Musk, the master of Twitter” as those words did come out of my mouth because I’d never discount Musk’s ability to play this game. That’s why I’ve been even more intrigued why he’s escalated things. He is the Master of Twitter.
D’s and G’s
...and voila! It’s now official! He’s the biggest shareholder. This is what he does, and he does it so well.
Okay, first a few things about the purchase itself. Every level of it feels like a S Elon’s C to the SEC. I’ll guarantee you in the coming weeks the average, non-financial market participant will be able to explain the distinction between a 13D and 13G filing.
Musk filed a 13G, which is used when the investor owns more than 5% of a company’s total stock but intends to remain fully passive. If they intend to take any active interest in the management of the company, they’re supposed to file a 13D. Rveryone imagining the different ways Musk is going to shake up Twitter should throw out those takes because the legal filing choice indicates he has no intention of engaging in shaping the future of the platform or company [that was sarcasm].
As I write this, Musk is tweeting about whether there should be an Edit Button
there are articles all just reciting that tweet
the CEO of Twitter is quote-tweeting this
Like 90% of my feed is now people talking about Edit buttons. It’s like Trumpian jiu-jitsu. The more egregious and brazen the bad behavior is, the more confusing and difficult it is to parse.
…and as I’m editing this Elon has been named to the Board of Twitter. It’s utterly wild.
He filed the form (and he filed it late) of a passive investor, and now has been named to the board. Nothing, absolutely nothing, matters.
One more time, quickly, let’s review the timeline:
Sept 2018 - Feb 2022: Musk periodically and quietly spars with the SEC while Tesla becomes one of the most valuable companies in the world. Elon is named Greatest Person to Ever Live in the Universe by TIME, the FT, and every other publication.
Feb 7th - March 8th, 2022: Musk goes public. Letters, court filings, court filings that include Eminem lyrics, and a full-on assault. He’s forcing the SEC’s hand.
March 14th, 2022: Musk had accumulated at least half his position in TWTR by mid-March meaning, at the exact time he escalated his battle with the SEC over.....his ability to tweet…..he had already decided to become the largest shareholder in Twitter.
April 4th, 2022: We find out Musk, who has never held big equity position in a company he doesn’t own, has accumulated a 9.2% position in Twitter.
I get it - this entire thing could be as simple as Matt Levine put it:
“He bought 9.2% of Twitter because he has money, and wants to spend some of it on being more annoying on Twitter.”
Given how much Elon loves and is the master of tweeting, this is not implausible. But maybe it’s both about the lulz and legal jiujitsu. Imagine in mid-February, as Musk decides he wants to bring the fight head-on about his right to tweet, someone tosses out the idea “why don’t you just buy Twitter?” Everyone laughs and then he does it. It is the shitpost to end all shitposts. No one will ever outdo this.
And for a thought experiment, imagine there is a video of Elon telling Kimbal on Nov 5th “you should sell your shares because we are going to commit securities fraud and I am going to push the value down of this company over the next month” and the SEC finally gets real about going after him. Now picture you’re in the room with Twitter’s Safety and Security team. They’ve just received instructions from the SEC about restricting the account of the guy who is the biggest shareholder in their company and is on their board (and has no qualms about going after those who financially cross him).
It kind of feels like Elon Musk might’ve just solved his entire SEC problem for $2.9 billion. How does the SEC go after his ability to tweet when he....owns Twitter?
Why this matters?
Nothing matters anymore, but this kind of does. It’s like a real-time view into the shit-postification of our financial markets.
For the first time forever I was interested in TWTR the stock. It finally felt like they got their shit together. They nailed it with Spaces, they’re pushing hard on newsletters, communities, even their shopping product might be something. How quickly they reversed the reverse chrono debacle showed they’re finally responsive. It’s almost like they’re a real company!
Now the CEO of Twitter is shitposting alongside Elon. Did Parag know about the 13D vs 13G thing when appointing Musk to the board and is also yelling “S Elon’s C”? Will there really be an edit button or is this a joke? This was a good company with a straightforward business that looked like it might execute on a turnaround. Now the stock is up 30% since Musk’s filing was disclosed and it lives beyond the realm of any kind of rational analysis. Now we just speculate on what Elon and Parag might do next and laugh.
It’s wild to think about. The U.S. government regulator has been in a fight with the world’s richest man over his ability to use a communications platform that’s vital to his business interests - and he just went and effectively bought the platform. Both Can and I have repeatedly written about the emerging market-ification of the U.S., and this really feels like another one of those moments where we look back on and remember how we all posted memes as it happened.