Elon Trolls the SEC

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S1: Just a quick warning before we get started. There is a reference to a graphic act in this episode. Okay. Here’s the show.

S2: Hey. How’s it going?

S1: Hello. Hi. I called up Ranjan Roy this week because he’s one of the few people in the tech media world whose ideas consistently fascinate me. We once had him on the show to talk about arbitrage and pizza. How long have you been on Twitter?

S2: 2008 Hulu.

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S1: Long time user.

S2: Long time user. Yep.

S1: Ranjan writes the newsletter margins, and the most recent issue is all about Elon Musk and the 9.1% stake he just bought in Twitter.

S2: Elon Musk has bought nearly 10% of Twitter for an investment of around $3 billion. The Twitter.

S1: Share. That was Monday. A day later came this news. Wild.

S3: We’ve got some breaking news to bring you right now, which is that Elon Musk is now being appointed to Twitter’s board of directors to serve as what’s called.

S1: While everyone else was trying to process the world’s richest man buying a slice of his favorite megaphone, Ranjan 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 was doing the opposite and ramping up his legal fight with the agency.

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S2: In early March, I had made a bit of a fuss that Elon Musk was up to something based on his behavior, with what he was doing with the FCC, and something was off and it made no sense. And then when I woke up and saw the news, it all made sense to me.

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S1: Musk won’t just own a chunk of Twitter. He’ll have power, sway and be able to influence what the company does.

S2: The world’s richest man has just become the biggest owner of the world’s most influential platform. What’s he going to do? What’s he thinking? What’s where’s he taking this? It’s a question that affects everything.

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S1: Today on the show, Ron Jones theory about how Elon Musk is thumbing his nose at federal regulators. Like it or not, Twitter has a new king. I’m Lizzie O’Leary and you’re listening to what next? TBD, a show about technology, power and how the future will be determined. Stick around. Back in December, Twitter embarked on a seismic shift. Co-Founder and CEO Jack Dorsey left the company, and chief technology officer Parag Agarwal took over. At the time, people wondered what a post Jack Twitter would look like. Now, several months later, Ron Johns, a fan.

S2: I have been more impressed by Twitter’s product development over the last six months and I have in the last ten years spaces. They killed it. I mean, they destroyed clubhouse. The way it fits into the product is so perfect, the way it drives you into conversations you’re actually interested in. Even Twitter blew their premium service that you paid $3 to get a different color icon and undo your tweets. I think there’s something there. You also get bookmark folders which for power users is interesting. They’re doing stuff in shopping. They really have shown that they have their stuff together. They were kind of in a position where they were going to make a move against the Facebooks of the world.

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S1: Does this feel like a new era for them, do you think?

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S2: Yeah, I think so. Jack Dorsey leaving clearly meant that things were going to change. From a branding standpoint, Trump dominating it so heavily from 2016 to 2020 and essentially being the face of it. I think now it was kind of a clean slate where there was no one account that dominated the entire platform. It was becoming a real company that was finally growing up.

S1: If no account was dominating the whole platform the way Trump did, there is one that maybe comes close. 80 million followers. An avid fan of Twitter polls. You know who I’m talking about?

S2: How does Elon Musk use Twitter? I think he uses it perfectly. Tesla famously does not spend on marketing. It 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. And 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. So he creates this following that’s so hyper engaged and hyper loyal to him. So I think I think at every level he is the best user of the platform.

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S1: Musk’s tweets are enigmatic and weird. Sometimes they come in the middle of the night, and for years, everything he tweets has been under scrutiny, in particular from the Securities and Exchange Commission. And while the word securities regulation might make your eyeballs glaze over, 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.

S2: 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.

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S1: Those tweets sent Tesla’s stock flying.

S4: As the stock surged, the questions swirled who was providing the financing, what buyout shops would assist Musk in any kind of take private? How finalized is some sort of deal? And is $420 per share a real buyout price?

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S1: The SEC saw them and sued Musk for misleading investors.

S2: September 2018, the FCC and Musk had reached a settlement, and there’s a few different things that happened. First, Musk and Tesla each had to pay $20 million, which for the now world’s richest man, obviously this is nothing. Musk no longer be the chairman of Tesla, but then the third most relevant thing for for what’s happening this week, he Tesla would have to put in place a process where any of Musk’s statements that could include blog posts or tweets or anything like that had to be go through some kind of internal legal process to make sure that they were vetted and that it was kind of everyone would joke is like Musk’s Twitter sitter, his babysitter overseeing his tweets.

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S1: We can’t know for sure. But 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 sell 10% of his Tesla shares. They said yes. Musk sold $16 billion in stock, which triggered a broad Tesla selloff yet again. The SEC was not thrilled it subpoenaed Tesla after he sent the poll. I think if you are not someone who follows financial markets or is particularly fascinated by, you know, how the SEC works, you might be like, okay, why? Why is it a big deal what Elon Musk tweets like? Yeah, he’s a wacky billionaire. Why does the SEC get so upset by this?

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S2: I mean, if you can just imagine if Tim Cook apples trading around 170 right now, if he came out and just out of nowhere said they’re taking the company private at 200 or that our iPhone production is going to be twice what we said a week ago in an official earnings call. The stock’s going to go crazy and that stock is in the retirement accounts or you know, how many Americans own that stock. It’s going to gyrate like crazy. Maybe it goes up in the short term. And then you find out it’s not true. And then it collapses. If you’re the CEO of a public company, you just can’t make completely false or, you know, unpredictable statements about the entire financial future of your public company, where pension funds, people’s retirements are all resting on these kind of tweets and these statements. We’ve spent, you know, like 100 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 our markets, everyone in the world wants to be taking their companies public in them because they work so well, especially relative to many other countries. And that’s the thing that’s in danger right now.

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S1: Do you think it’s fair to say that Elon Musk is thumbing his nose at those 100 years of rules of the road, by the way? He tweets?

S2: Yes, of course. Remember, Elon Musk went on 60 Minutes and openly said, I do not respect the FCC.

S3: I want to I want to be clear. I do not respect the FCC. I do not respect them.

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S4: But. But you’re abiding by the settlement, aren’t you?

S3: Because I respect the justice system.

S2: He tweeted shortly after their settlement. S e. C is a three letter acronym middle word Ellen’s, which I will let any listener figure out the word or puzzle there. But like he’s been very vocal even in his recent court filings, 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.

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S1: When we come back, is Elon Musk’s stake in Twitter a middle finger to the FCC or something else? In February, Ranjan says 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. Then in March, he filed a legal motion to have his original SEC settlement thrown out.

S2: I’m sitting there, I’m like, Why is he doing this? He literally, after this original settlement, he has his Twitter babysitter. The SEC is supposed to be watching him. He’s doing whatever he wants. And Tesla becomes the most valuable company in the world. And even right now, as of early March, Tesla as a business operationally is kind of humming along at the best it’s been doing in a long time. So there was no reason he should be escalating this feud with the S.E.C. and making such a big deal about it out of nowhere. They had this detente for like a couple of years. Suddenly he started making moves that it felt like something was just off, that there was no reason to be legally escalating things at that point.

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S1: So why do you think he was doing it?

S2: Okay. So we have come to find out we can kind of go through a few possible reasons why has Musk done any of this? But Musk started buying shares of Twitter January 31st.

S1: We know this from securities filings.

S2: Securities filings. This just came out this week. Then February 7th, he starts this escalation with the S.E.C. He starts pushing it much, much faster. And at the end of January, early February was also tweeting a lot about the truck, Canadian truckers, freedom of speech. And he is also equated this entire SEC enforcement saga around his freedom of speech being chilled. So whatever the exact catalyst was, was it the SEC? Was it the Canadian truckers? Clearly, this topic of free speech was on his mind. The SEC was on his mind. He equates the SEC enforcement around free speech. So at some point he decided, I’m going to become the largest shareholder of Twitter. I am going to get 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. All this was happening in throughout the month of February and March.

S1: 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.

S2: 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. It’s one thing when he’s again, maybe he’s just tweeting and spending $2.9 billion on Robinhood. That’s one thing to take the legal actions in parallel. That is not a knee jerk. Send out a tweet, press one button on your phone. 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 with that kind of behavior. It’s crazy. In the US, like in a functional capital market, like these are the kind of things that you just would not normally think happened. Of course, there’s plenty of discussion. Will he reinstate Trump’s account? How will he handle? Will he go after Twitter employees if they make censorship decisions? You know, is he going to bring in new board members that are more favorable to his politics? So obviously, there’s a million different ways to look at this.

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S1: Do you expect him to throw his weight around on the board?

S2: I think he will throw his weight around because that’s the fun thing to do. That’s the you know, I mean, whatever anyone will say about Elon Musk, he loves Twitter. He loves the platform. He has shown himself to be the one of the greatest users of it. So, yeah, I cannot see why he would take the board seat without trying to influence things. And again, remember, all of this over the last few months has been around this idea of censorship or his view of freedom of speech. So I do think that this is a topic that is genuinely important to him, whether you agree with his views on it or not. And I cannot imagine why he would go through all of this to not exercise some power or strength around the topic.

S1: I feel compelled as a journalist to point out that if you are talking about freedom of speech vis a vis the First Amendment, the First Amendment protects you from the government. It does not mean that Twitter can’t tell you what to say on its platform, and I wonder what other people on the board I think about sort of maybe boring, respectable people like Bob Zoellick, who, you know, it was a long time hand in Republican administrations and and head of the World Bank. Like, what do they do with that? What do they do with the Elon Musk view of free speech?

S2: I think that’s what makes this even more interesting, because board of directors over the last decade, especially around tech companies, have not been the most active, have not taken courageous stances in many cases. So I do think that 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 don’t I cannot imagine anyone would just try to go up against him on anything.

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S1: For a long time. If you have thought about tech companies, you’ve also thought about kind of the extra voting power that founders have on their boards. In this case, it it feels like the person who’s going to have the extra power is not the founder. Right. Is that a shift that we might see in other companies or is this all very specific to these particular players in this drama?

S2: So for context, there is this development over the last ten, 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. And 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 kind of like central figure representing the platform who is able to stand up to this kind of behavior.

S1: Ron John says that whatever the next chapter in this year’s long saga is, it’ll be written in Washington.

S2: What does the SEC do 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 now owns the company. I mean, a lot of it. Yeah, a lot of it. He’s 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 US financial legal framework. And 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?

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S1: Ranjan Roy, thank you very much for your time.

S2: Thank you for having me.

S1: Ranjan Roy writes the newsletter margins. That is it for the show today. TBD is produced by Ethan Brookes, were edited by Tori Bosch. Joanne Levine is the executive producer for what next? And Alisha Montgomery is the executive producer for Slate Podcasts. TBD is part of the larger what next family, and it’s also part of Future Tense, a partnership of Slate, Arizona State University and New America. I want to take a moment to recommend that you go back and listen to Wednesday’s episode of What Next All About Amazon’s First Union. We will be back on Sunday with another episode. I’m Lizzie O’Leary. Thanks for listening.