Warren urges SEC to investigate Tesla over Twitter ties, governance

Sen. Elizabeth Warren, D-Mass., sent a letter urging the U.S. Securities and Exchange Commission to investigate Tesla and its board of directors over possible “conflicts of interest, misappropriation of corporate assets, and other negative impacts to Tesla shareholders” related to CEO Elon Musk‘s Twitter takeover.

In the letter sent to SEC Chair 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 which fall under SEC’s jurisdiction.”

The nine-page letter, first obtained by CNBC, reiterates concerns Warren had raised in earlier correspondence to Tesla Chair Robyn Denholm in December 2022, after Musk led a $44 billion buyout of Twitter. The take-private deal included $13 billion in debt, and Musk reportedly sold billions of dollars worth of his Tesla shares to finance the transaction.

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 closed and quickly made sweeping changes to the social network, while cutting more than three-quarters of the staff at the company and authorizing teams of employees from Tesla and SpaceX to assist him there.

Citing CNBC’s reporting on the matter, Warren wrote that taking Tesla employees over to Twitter could have comprised “possible violations of state and federal labor law,” and that Tesla’s board had not informed shareholders appropriately about the ways that the two companies have worked together, or may work together.

In recent weeks, Musk appointed Linda Yaccarino, who previously ran global advertising for Comcast’s NBCUniversal, to the role of Twitter CEO. Her hiring stirred hope that Twitter’s beleaguered advertising business would soon recover and that Musk would return to focus on Tesla and SpaceX.

Early Saturday, Musk admitted that Twitter’s cash flow remains negative after 50% ad revenue declines and “heavy debt.” Tesla is scheduled to report its second-quarter earnings after the bell on Wednesday of this week.

In her letter to the SEC chairman, the senator said that the appointment of Yaccarino still leaves Musk in charge of Twitter, where he is now CTO and executive chairman, and the arrangement could lead to conflicts of interest.

Among these, she wrote that at Twitter, Musk could “decide to run the company to maximize badly-needed revenue, even if that includes great deals for Tesla’s competitors and potential injury to Tesla.” Contrarily, she said Musk could opt to “run Twitter to benefit Tesla through favorable algorithms or free advertising.”

Musk and the SEC have already clashed repeatedly. The federal financial regulators charged Musk with civil securities fraud after he tweeted in 2018 that he was considering taking Tesla private for $420 per share and had “funding secured” to do so. The tweets caused a halt in trading of Tesla shares and sent the company’s share price seesawing for weeks.

Musk and Tesla paid fines and struck a revised consent decree to settle the charges in 2019, but Musk later moved to end that agreement or modify it. In May 2023, a federal appeals court judge rejected the Tesla CEO’s request to end the agreement, which requires that any of his tweets containing material Tesla business information be reviewed and approved by a securities lawyer at Tesla before Musk posts them.

Tesla did not immediately respond to a request for comment.

Disclosure: NBCUniversal is the parent company of CNBC.