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Warren calls on SEC to investigate Tesla over Twitter ties and management

Electric car maker Tesla CEO Elon Musk meets with French Economy and Finance Minister Bruno Le Maire on the sidelines of the 6th Choose France summit at the Château de Versailles, near Paris, on May 15, 2023.

Ludovik Marin | Pool | Via Reuters

Sen. Elizabeth Warren, R-Massachusetts, has sent a letter urging the U.S. Securities and Exchange Commission to investigate Tesla and its board of directors over potential “conflicts of interest, misappropriation of corporate assets and other negative consequences for Tesla shareholders” related to CEO Elon Musk’s takeover of Twitter.

In a letter sent to SEC Chairman Gary Gensler on Monday, Warren wrote that the Tesla board’s “apparent lack of independence” from Musk, combined with “inaction and incomplete disclosures, raise questions about possible violations of securities laws and exchange rules subject to SEC action. jurisdiction”.

The nine-page letter, first obtained by CNBC, echoes concerns Warren expressed in an earlier correspondence with Tesla CEO Robin Denholm in December 2022 after Musk bought Twitter for $44 billion. The private deal included $13 billion in debt, and Musk reportedly sold billions of dollars worth of Tesla stock to finance the deal.

The SEC’s Office of Public Affairs did not immediately respond to a request for comment.

Musk appointed himself CEO of Twitter after the deal and quickly overhauled the social network, while cutting more than three-quarters of the company’s staff and allowing teams of employees from Tesla and SpaceX to help him.

Citing a CNBC report on the matter, Warren wrote that the move by Tesla employees to Twitter could have been a “potential violation of state and federal labor laws” and that Tesla’s board of directors did not adequately inform shareholders about how the two companies worked together, or could work together. together.

In recent weeks, Musk appointed Linda Yacarino, formerly of global advertising for Comcast’s NBCUniversal, to be CEO of Twitter. Her hiring raised hopes that Twitter’s ad business would soon recover and that Musk would return to Tesla and SpaceX.

Musk acknowledged early Saturday that Twitter’s cash flow remains negative after a 50% drop in advertising revenue and “a lot of debt.” Tesla is scheduled to report second-quarter earnings after a call on Wednesday this week.

In her letter to the SEC chairman, the senator said Yakarin’s appointment still leaves Musk in charge of Twitter, where he is now CTO and executive chairman, an arrangement that could create a conflict of interest.

Among them, she wrote on Twitter that Musk could “decide to run the company to maximize much-needed revenue, even if that includes making good deals for Tesla’s competitors and potentially hurting Tesla.” Instead, she said Musk could “launch Twitter to benefit Tesla through favorable algorithms or free advertising.”

Musk and the SEC have already clashed many times. Federal financial regulators charged Musk with civil securities fraud after he tweeted in 2018 that he was considering taking Tesla private for $420 a share and had “secured financing” to do so. The tweets halted trading in Tesla shares and caused the company’s stock price to fluctuate for several weeks.

Musk and Tesla paid the fines and issued a revised consent decree to settle the charges in 2019, but Musk later terminated or modified the agreement. In May 2023, a federal appeals court judge denied the Tesla CEO’s request to end an agreement that required all of his tweets containing material Tesla business information to be reviewed and approved by Tesla’s securities lawyer before Musk published them.

Tesla did not immediately respond to a request for comment.

Disclosure: NBCUniversal is the parent company of CNBC.

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