SEC Vs. Elon: Judge Rules Musk Must Testify Again About $44B Twitter Takeover

Elon Musk will testify in court again as part of the Securities and Exchange Commission’s investigation into his $44-billion takeover of Twitter.

Laurel Beeler, federal judge in San Francisco, told lawyers representing the Tesla CEO that Musk will have to endure another day in court. Musk’s legal team argued the SEC does not have the authority to issue subpoenas, a claim that was quickly rejected by Beeler.

Lawyers for the regulator argued the SEC has new documents relating to the takeover and that Musk must answer further questions.

Beeler said that the SEC has “broad investigative powers” and that no judge would “second guess” an investigation by the agency.

She told both legal teams that Musk and the SEC must agree to a date for a further day of testimony — and if not, Beeler said she’d set a date for them.

“You’ve got one more four-hour deposition, one more day of depositions to survive and it’s over,” she said. She added: “If you don’t work it out, then it’s in San Francisco in February.”

Musk And SEC: A Checkered History

Musk and the SEC have had previous run-ins, the most high profile of which was related to his 2018 tweet saying he had “funding secured” to take Tesla private. The resulting share price volatility led to claims of misleading investors and prompted a civil suit by the SEC.

In settlement, Musk shelled out $20 million in fines and was stripped of his chairmanship over the electric vehicle maker. He was also told that any future tweets relating to Tesla must be screened by a company lawyer before being posted.

Last week, Musk appealed to the Supreme Court to have this so-called “Twitter sitter” clause removed from the 2018 settlement with the SEC.

Also Read: Supreme Court Vs. SEC: A Potential Game-Changer For Investors And Regulators’ In-House Courts

Documental Procedure

The markets regulator is still investigating whether Musk followed the correct legal procedures in filing the required documents regarding his purchases of Twitter stock, and whether his statements on the deal were misleading.

On April 4, 2022, Musk filed paperwork to the SEC announcing he’d acquired a 9.2% stake in Twitter 11 days after the regulator’s deadline for such disclosures. In this filing, Musk stated that he would be a passive stakeholder, indicating no interest in taking over the company.

Later in the same month, however, Musk announced plans to buy Twitter for $44 billion. Stating that Twitter had not fully disclosed the extent of bot activity, he later attempted to wriggle out of the deal, but was subsequently sued to complete the acquisition, which closed in October 2022.

Banking Backers Of Twitter Takeover Lost

On Friday, the Financial Times reported that Musk had privately told some of the banks that funded his Twitter buyout to the tune of $13 billion that they would not lose money on the deal.

In spite of these assurances, the seven banks that backed the leveraged buyout — among them Morgan Stanley MS, Bank of America BAC and Barclays BCS — are facing serious losses on the debt.

Hedge funds and other large institutional finance companies were last year reportedly offering 65 cents on the dollar for the senior-most portion of the debt.

But the FT said it had recently interviewed some of them, who now said they would not buy the debt at any price given their doubts about the ability of Twitter’s — now rebranded X — senior management to turn the business around.

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