Elon Musk joins Twitter board of directors after buying 9% stake in social media

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Tesla CEO Elon Musk has joined Twitter‘s board of directors a day after disclosing that he took a 9 percent stake in the social media platform which had prompted its stock to surge by nearly 30 percent. 

Twitter entered into an agreement with Musk on Monday that will give the billionaire a seat on its board, with the term expiring at its 2024 annual shareholders meeting, according to a Tuesday Securities and Exchange Commission (SEC) report obtained by DailyMail.com.

Musk, who has been highly critical of Twitter and its policies, said he is excited to ‘make significant improvements to Twitter in coming months!’

News of his board membership comes one day after Musk disclosed that he had purchased a 9.2 percent stake in Twitter Inc. on March 14, making him the social media platform’s largest shareholder.

Republican lawmakers on Monday praised Musk for protecting ‘free speech’ and alleged his share purchase was a warning about the social media giant’s ‘power.’ Others urged Musk to use his power to bring former President Donald Trump back to the platform after his account was taken down last year.

Musk has not spoken specifically about any Twitter rule changes he might push, however, the platform’s shares rose over 7 percent in premarket trading after Tuesday’s announcement.

After submitting the regulatory filing, Twitter CEO Parag Agrawal announced Musk’s board membership on the social media platform Tuesday morning, alleging the billionaire brings ‘great value’ to the company.

‘I’m excited to share that we’re appointing @elonmusk to our board! Through conversations with Elon in recent weeks, it became clear to us that he would bring great value to our Board,’ Agrawal wrote.

‘He’s both a passionate believer and intense critic of the service which is exactly what we need on @Twitter, and in the boardroom, to make us stronger in the long-term. Welcome Elon!’ 

Musk responded to the CEO, saying: ‘Looking forward to working with Parag & Twitter board to make significant improvements to Twitter in coming months!’  

The billionaire, either alone or as a member of a group, won’t be allowed to own more than 14.9 percent of Twitter’s outstanding stock for as long as he’s a board member and for 90 days after.   

News of Musk’s board seat comes amid allegations he broke SEC rules after missing the ownership-disclosure deadline for his stake in Twitter. 

Musk, who has 80 million Twitter followers, purchased 73.5 million shares of the platform on March 14, worth about $3billion. 

His shares represent a 9.2 percent passive stake in the company, according to the SEC 13G filing obtained by DailyMail.com. This type of filing is reserved for passive investors.

However, the SpaceX CEO has left himself open to penalties of up to $207,183 after he failed to disclose his ownership acquisition within 10 days of acquiring 5 percent of the company, as required by U.S. securities law.

Musk should have disclosed his shares by March 24 but didn’t sign the filing until 21 days after his purchase.

He also failed to include a certification indicating he didn’t acquire his stake in Twitter to change or influence control of the company, as is typically done when filing a 13G report, The Wall Street Journal reported.

Instead of including the certification in his form, Musk simply wrote: ‘Not applicable’.  

While the civil penalty is a financial slap on the wrist for Musk – the world’s richest person with a $302billion net worth, according to Forbes – the entrepreneur could also face charges of market manipulation after his filing triggered a surge in the company’s stock value of more than 27 percent.    

Twitter stocks have surged since mid-March when Musk purchased his stake. 

His shares, valued at around $2.4billion at the closing price of March 14, jumped to $3.7billion as of Monday’s closing price. 

As of 9am Tuesday, after it was announced he joined the board of directors, Twitter shares had climbed to $53.63, a 7.32 percent increase, CNBC reported. 

Based on the surge, DailyMail.com analysts estimate Musk has gained $2million since the announcement of the sale.

Experts allege investors are likely bidding shares higher on the chance that Musk’s stake and board membership could lead to something big within the company. 

The billionaire has been critical of Twitter and its policies of late, accusing the company of failing to adhere to free speech principles. 

He also made market-moving comments about the social media platform, after his purchase, without disclosing his stake.

On March 25, Musk tweeted a poll: ‘Free speech is essential to a functioning democracy. Do you believe Twitter rigorously adheres to this principle?’

A day later, Musk, a prolific user of Twitter himself, said that he was giving ‘serious thought’ to building a new social media platform.

Musk made these remarks after having acquired his large stake in the company, which he legally was required to reveal. 

‘This is not really a gray area. He acquired it and didn’t file within 10 days. It’s a violation. And so this is a slam dunk case from the SEC perspective,’ Adam C. Pritchard, a law professor at University of Michigan Law School, said. 

‘Arguably, his social media posts about potential alternatives to Twitter can be seen, in light of his previously undisclosed stake, as a form of market manipulation to affect the share price, but proving that seems difficult,’ echoed Howard Fischer, a former SEC council and a partner at law firm Moses & Singer. 

‘The fact that the revelation of his stake caused a price rise that resulted in Musk’s stake increasing in value is something that the SEC might look into.’

Also on Monday, after revealing his stake in Twitter, Musk took to Twitter asking: ‘Do you want an edit button?,’ referencing a feature that many users have requested. 

Agrawal shared the post, writing: ‘The consequences of this poll will be important. Please vote carefully,’ seemingly referencing Musk’s previous tweet. 

In addition, some well-timed trades in Twitter options days before Musk revealed his purchase are raising eyebrows among options analysts.

‘The SEC certainly would look at if anyone who knew about the acquisition of these shares trading in advance of the filing. I really think that would be the focus rather than the tardiness,’ said Jacob Frenkel, a former SEC enforcement attorney and government investigations and securities enforcement practice chair for law firm Dickinson Wright.  

SEC disclosure punishments are historically modest, however the regulator could look into market manipulation allegations regarding the Twitter stock buy and seek harsher sanctions in an ongoing investigation regarding his Tesla stock sales.

The SEC said last month it has told Musk’s and Tesla’s counsel that staff are conducting an investigation relating to potential federal securities law violations. 

The federal regulator is also investigating Musk’s Nov. 6, 2021, tweet asking his followers whether he should sell 10 percent of his Tesla stake. 

The regulator reached a 2018 deal for Musk to get pre-approval on some of his tweets, following a Musk tweet that he had ‘funding secured’ to take Tesla private, which the SEC claimed defrauded investors.

Analysts allege the SEC could ‘tell a court that he’s a recidivist violator of the securities laws and that he needs to be dealt with harshly.’

‘Musk is taking real risks here,’ said Urska Velikonja, a law professor at Georgetown University Law Center. 

Musk was playing a game with the SEC officials, saying ‘Stop me if you can, but you can’t,’ she said, adding: ‘I do suspect the SEC is going to look long and hard into whether they can bring manipulation charges, along with the failure to file.’ 

Neither Tesla nor the SEC immediately responded to requests for comments.