Update, April 11, 2022: Today Twitter announced that Elon Musk will no longer be joining Twitter’s Board.
On April 4, it was announced that Elon Musk had bought a 9.2 percent stake in Twitter. A day later came the news that Musk was being appointed to Twitter’s board of directors. While everyone else was trying to process the world’s richest man buying a slice of his favorite megaphone, Ranjan Roy, author of the newsletter Margins, was formulating a theory: that the whole thing was wrapped up in Musk’s running fight with the Securities and Exchange Commission. The SEC has long wanted Musk to dial back the tweeting. Instead, he’s been doing the opposite while and ramping up his legal fight with the agency. With his 9.2 percent stake and a seat on the board, Musk won’t just own a chunk of Twitter—he’ll have influence over it. But how much?
On Friday’s episode of What Next: TBD, I spoke with Roy about how Elon Musk is using Twitter to thumb his nose at federal regulators. Our conversation has been edited and condensed for clarity.
Lizzie O’Leary: Back in December, Twitter embarked on a seismic shift. Co-founder and CEO Jack Dorsey left the company, and Chief Technology Officer Parag Agrawal took over. Does this feel like a new era for Twitter?
Yeah, I think so. Jack Dorsey leaving clearly meant that things were going to change. Trump dominating it so heavily from 2016 to 2020 and essentially being the face of it, I think now it was a clean slate where there was no one account that dominated the entire platform. It was becoming a real company; it was finally growing up.
If no account is dominating the whole platform the way Trump did, there is one that maybe comes close. Eighty million followers, an avid fan of Twitter polls. You know who I’m talking about. So how does he use Twitter?
How does Elon Musk use Twitter? I think he uses it perfectly. Tesla famously does not spend on marketing, does not have a PR department. He literally, with his account, replaces entire corporate functions. One of the most brilliant ways he uses it is in how he replies and how he elevates other accounts. Then once you elevate an account, they essentially remain loyal to you. People regularly tweet how proud they are that he replied directly to them. At every level he is the best user of the platform.
For years, everything Musk tweets has been under scrutiny, in particular from the Securities and Exchange Commission. The SEC’s job is to make sure that if Musk tweets from the hip, whatever he says doesn’t jeopardize the stock market or people’s investments.
August 2018 was when it really started. Elon Musk had tweeted that he’s considering taking Tesla private at $420 and then followed up and said that funding was secure.
Those tweets sent Tesla’s stock flying. Then, the SEC saw them and sued Musk for misleading investors.
In September 2018, the SEC and Musk had reached a settlement. First, Musk and Tesla each had to pay $20 million, which, for the now world’s richest man, obviously this stuff is nothing. Musk can no longer be the chairman of Tesla. And Tesla would have to put in place a process where any of Musk’s statements—blog posts or tweets or anything like that—had to go through some kind of a legal process to make sure that they were vetted.
Everyone joked it was like Musk’s Twitter-sitter, his babysitter, overseeing his tweets.
Based on his Twitter, it seems like Musk has not listened to his babysitter. In November 2021, he polled his followers on Twitter on whether he should 10 percent of his Tesla shares. They said yes, and Musk sold $16 billion in stock, which triggered a broad Tesla sell-off. Yet again, the SEC was not thrilled. It subpoenaed Tesla after he sent the poll. Why does the SEC get so upset by Musk’s use of Twitter?
Imagine if Tim Cook—Apple’s trading around $170 right now—came out and out of nowhere said they’re taking the company private at $200, the stock’s going to go crazy. Maybe it goes up in the short term, and then you find out it’s not true, and it collapses. If you’re the CEO of a public company, you just can’t make completely false or unpredictable statements about the entire financial future of your public company, when pension funds, people’s retirements, are all resting on these kind of tweets and these statements.
We’ve spent like a hundred years of financial market regulatory action to build a system of communications to regulate how executives can talk about their companies. Living in the U.S., you have such an advantage financially, in part because everyone in the world wants to be taking their companies public in our markets because they work so well. That’s the thing that’s in danger right now.
Do you think it’s fair to say that Elon Musk is thumbing his nose at those hundred years of rules of the road, by the way he tweets?
Yes, of course. Remember, Elon Musk went on 60 Minutes and openly said, “I do not respect the SEC.” He tweeted shortly after their settlement, “SEC’s a three letter acronym, middle word Elon’s,” which I will let any listener figure out the Wordle puzzle there. He’s been very vocal that even in his recent court filings that the SEC is chilling his freedom of expression. He believes he should not be penalized for making public statements like he has in the past.
In February things between Elon Musk and the SEC really heated up. Tesla disclosed the subpoena over the Twitter poll, then Musk and his lawyer claimed in a letter that the SEC was leaking information about him. On Twitter, he implied that the SEC was corrupt and colluding with hedge funds. In March, he filed a legal motion to have his original SEC settlement thrown out. What were you thinking while watching these developments?
I’m sitting there like, “Why is he doing this?” Even as of early March, Tesla, as a business, operationally, is humming along at the best it’s been doing in a long time. There was no reason he should be escalating this feud with the SEC and making such a big deal about it out of nowhere. They had this detente for a couple of years, and suddenly he started making moves.
Why do you think he was doing it?
We have come to find out that Musk started buying shares of Twitter on Jan. 31.
We know this from securities filings.
Then Feb. 7, he starts this escalation with the SEC. He starts pushing it much, much faster. At the end of January, early February, he was also tweeting a lot about the Canadian truckers, freedom of speech. He has also equated this entire SEC enforcement saga around his freedom of speech being chilled. Whatever the exact catalyst was—was it the SEC? Was it the Canadian truckers?—at some point he decided, “I’m going to become the largest shareholder of Twitter, I am going to get up myself on the board of Twitter, and I’m going to escalate things with the SEC and make this something that either I have to win or lose, but something’s got to give.”
You really think it’s that calculated? He couldn’t just be a rich dude who wants to have fun on Twitter and decided to throw a lot of money at it?
No, no. This is the most important part of this, writing a letter to a judge, filing a legal motion to throw out a settlement. The world’s richest man is in a fight with a government regulator over his usage of a specific platform. He just went and essentially bought the platform, or became the most powerful person within that company. That kind of behavior, it’s crazy in the U,S. In a functional capital market, these are the kind of things that you just would not normally think would happen.
Of course, there’s plenty of discussion. Will he reinstate Trump’s account? Will he go after Twitter employees if they make censorship decisions? Is he going to bring in new board members that are more favorable to his politics?
Do you expect him to throw his weight around on the board?
I think he will throw his weight around because that’s the fun thing to do. Again, remember, all of this over the last few months has been around this idea of censorship or his view of freedom of speech. I do think that this is a topic that is genuinely important to him. I cannot imagine why he would go through all of this to not exercise some power or strength around the topic.
I mean, would you want to be the boring board member that goes up against Elon? Up to date, we have not seen anyone outspoken around the issues that plagued Twitter from the board, so I cannot imagine anyone would try to go up against him on anything.
For a long time, if you have thought about tech companies, you’ve also thought about the extra voting power that founders have on their boards. In this case, it feels like the person who’s going to have the extra power is not the founder. Is that a shift that we might see in other companies, or is this all very specific to these particular players in this drama?
For context, there’s this development over the last 10, 20 years in technology companies—super voting shares, or different classes of shares for founders—where it essentially gave them unchecked power. The amazing thing is Twitter is one of the few companies that now has not been built in this way. It’s not Google, Facebook, Snapchat, any of these. Suddenly, it looks like maybe that’s not the greatest thing, because that’s why they’re in a bit of turmoil or there is not one central figure representing the platform who is able to stand up to this kind of behavior.
What comes next from this battle between Musk, Twitter, and the SEC?
What the SEC does is going to be the most important question, because remember, the SEC was going after Elon Musk’s ability to tweet for the last two years. He’s now the most powerful person in the company. Imagine they go to Twitter’s safety and protection team and say, “Hey, you need to take these down because of reasons A, B and C from the U.S. financial legal framework,” are you going to be the employee at Twitter’s safety team that does that? If he uses his account to continue to break securities laws in their view, what can they do?