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Warren Calls for SEC Probe into Tesla’s Twitter Connections and Corporate Governance

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Senator Elizabeth Warren, a representative from Massachusetts belonging to the Democratic Party, has recently communicated her concerns to the U.S. Securities and Exchange Commission.

In her letter, she has requested an investigation into Tesla and its board of directors. The investigation is specifically focused on potential conflicts of interest, misappropriation of corporate assets, and any other adverse effects that may have impacted Tesla shareholders.

In the correspondence addressed to SEC Chair Gary Gensler on Monday, Warren expressed concerns regarding the perceived absence of independence within the Tesla board in relation to Musk.

Senator Elizabeth Warren, a Democrat from Massachusetts, during a markup session of the Senate Banking, Housing, and Urban Affairs Committee, in Washington, DC, US, on Wednesday, June 21, 2023. Three Federal Reserve nominees, two of them current central bank policymakers, said tackling inflation would be their top priority if confirmed to roles at the central bank. Photographer: Anna Rose Layden/Bloomberg via Getty Images

Additionally, Warren highlighted the board’s perceived inaction and incomplete disclosures, which give rise to inquiries about potential infractions of securities laws and exchange regulations falling under the purview of the SEC.

Warren’s Nine-Page Letter

The letter, consisting of nine pages, was initially obtained by CNBC.

It serves as a reaffirmation of the concerns previously expressed by Warren in her earlier correspondence to Tesla Chair Robyn Denholm in December 2022.

These concerns arose following Musk’s leadership in a $44 billion acquisition of Twitter.

The take-private transaction encompassed a substantial $13 billion debt component, with reports indicating that Musk divested billions of dollars’ worth of his Tesla shares to secure the necessary financing for the deal.

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A representative from the SEC’s Office of Public Affairs has stated that Mr. Gensler will personally address inquiries from Members of Congress.

Elon Musk Takes Charge

Following the completion of the deal, Musk assumed the role of CEO at Twitter and promptly implemented significant modifications to the social network.

Additionally, he implemented a substantial reduction in the company’s workforce, amounting to over 75%, and authorised dedicated teams from Tesla and SpaceX to provide support and assistance in his endeavours at Twitter.

Unveiling the Hidden Connections

Senator Elizabeth Warren, a Democrat from Massachusetts, speaks during a Senate Banking, Housing, and Urban Affairs Committee hearing in Washington, DC, US, on Tuesday, May 16, 2023. The fight over who bears the blame for the recent US bank failures will turn ever more political today when lawmakers grill the lenders’ former senior managers and top regulators. Photographer: Al Drago/Bloomberg via Getty Images

According to CNBC’s report, Warren expressed concerns regarding the potential violation of state and federal labour laws if Tesla employees were transferred to Twitter.

Additionally, Warren noted that Tesla’s board had not adequately disclosed to shareholders the extent of collaboration between the two companies, both in the past and in the future.

Recently, Elon Musk has made the decision to appoint Linda Yaccarino as the new CEO of Twitter. Yaccarino brings with her a wealth of experience, having previously held the position of overseeing global advertising at Comcast’s NBCUniversal.

The recruitment of the individual instilled optimism regarding the potential revival of Twitter’s struggling advertising enterprise, as well as the likelihood of Musk redirecting his attention towards Tesla and SpaceX.

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On Saturday, Musk acknowledged that Twitter’s cash flow continues to be negative due to a significant decline of 50% in ad revenue and a substantial amount of debt.

Tesla is expected to announce its second-quarter earnings after the market closes on Wednesday of this week.

In the correspondence addressed to the Chairman of the Securities and Exchange Commission (SEC), the senator expressed concerns regarding the appointment of Yaccarino, which effectively maintains Musk’s authority over Twitter, where he currently holds the positions of Chief Technology Officer (CTO) and Executive Chairman.

The senator highlighted the potential for conflicts of interest arising from this arrangement.

In her statement, she expressed that at Twitter, Musk has the authority to make decisions that prioritise generating much-needed revenue, even if it involves offering favourable terms to Tesla’s competitors and potentially harming Tesla.

On the contrary, she suggested that Musk might choose to oversee Twitter operations in order to leverage favourable algorithms or obtain free advertising for the benefit of Tesla.

The Epic Showdown

Elon Musk and the U.S. Securities and Exchange Commission (SEC) have engaged in multiple conflicts in the past.

Musk was charged by federal financial regulators with civil securities fraud subsequent to his 2018 tweet wherein he expressed contemplation of privatising Tesla at a price of $420 per share, asserting the presence of secured funding for the endeavour.

The tweets resulted in a suspension of trading for Tesla shares and led to significant volatility in the company’s stock price over a prolonged period.

Musk’s Bold Move

In 2019, Musk and Tesla were subject to fines and entered into a revised consent decree to resolve the charges. However, Musk subsequently sought to terminate or amend the terms of that agreement.

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In May 2023, a federal appeals court judge denied the Tesla CEO’s request to terminate the agreement.

This agreement mandates that any tweets from Musk, which contain material Tesla business information, must undergo review and approval by a securities lawyer at Tesla prior to their publication.

The Mysterious Silence

Tesla has not yet provided a response to the request for comment.

 

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