By Ryan Morgan
Twitter filed a request to subpoena communications between Sen. Elizabeth Warren (D-Mass.) and the U.S. Securities and Exchange Commission (SEC) and Federal Trade Commission (FTC), escalating a legal battle surrounding the social media company’s human resource practices after Elon Musk bought out the company.
Twitter’s subpoena request comes as a response to a letter Ms. Warren sent to the SEC on Monday, July 17, asking it to investigate another business entity owned by Mr. Musk, the Tesla electric car company. Ms. Warren wrote (pdf) that Mr. Musk’s control over Twitter and Tesla “raised concerns about conflicts of interest, misappropriation of corporate assets, and other negative impacts to Tesla shareholders.”
“Despite recent and repeated calls from investors to address these actions, the [Tesla Board of Directors] appears to have failed to uphold its legal duty to ensure that Mr. Musk act in the best interest of Tesla,” Ms. Warren’s letter to the SEC continues. “The Board also does not appear to have adequately disclosed concerns about these issues to investors, undermining shareholders’ ability to make informed voting and investing decisions and to hold their fiduciaries accountable.”
On Thursday, Twitter’s legal representatives filed a request before the federal court for California’s Northern District, asking for copies of all communications between the Democrat senator and the two regulatory agencies after Mr. Musk bought out Twitter on Oct. 27, 2022. The subpoena notice seeks all documents relating to Ms. Warren’s July 17 letter to the SEC, including draft versions of the SEC letter and further communications between the senator and the FTC.
It’s not clear exactly what Twitter expects to find among Ms. Warren’s communications with the SEC and FTC. The documents could provide context as to the Democrat’s efforts to bring investigations against Mr. Musk’s businesses after he took over one of the most widely used social media platforms.
NTD News reached out to Twitter’s attorneys for comment but did not receive a response by the time this article was published.
Warren Questions Musk’s Business Deals
In her request for an SEC investigation, Ms. Warren raised concern about Mr. Musk serving as the chief executive officer for both Twitter and Tesla. Mr. Musk recently relinquished his position as Twitter’s CEO, replacing himself with Linda Yaccarino.
“Though Mr. Musk recently announced the hiring of Linda Yaccarino as the new CEO of Twitter, this does little to address the concerns to Tesla and its shareholders related to his dual role,” Ms. Warren’s July 17 SEC letter states. “Despite hiring Ms. Yaccarino, he is likely to retain “significant control” over the company and intends to continue overseeing core functions of the business.”
Ms. Warren raised concerns about Mr. Musk moving some of his Tesla employees over to work with Twitter, including Tesla’s then-Chief Information Officer and other senior staff.
“This use of Tesla employees raised obvious questions about whether Mr. Musk appropriated resources from a publicly traded firm, Tesla, to benefit his own private company, Twitter,” Ms. Warren wrote. “This would potentially violate Mr. Musk’s legal duty of loyalty to Tesla and trigger questions about the Board’s responsibility to prevent such actions, and may also run afoul other ‘antitunneling’ rules that aim to prevent corporate insiders from extracting resources from their firms.”
“Tunneling” in a corporate setting, can refer to the practice of a business executive fraudulently reallocating resources from a successful company to a side company they may own or operate.
Ms. Warren also raised the prospect that Twitter’s advertising practices could create a conflict of interest for Mr. Musk. He could either maximize gear Twitter’s advertising practices to maximize revenue, even at the risk of promoting other car manufacturers ahead of Tesla. Or he could gear Twitter’s advertising practices to show favoritism to Tesla at the expense of those competing car makers.
Musk’s Team Decries ‘Political’ Bias in Investigations
Mr. Musk’s Twitter takeover has drawn previous scrutiny from Democrats. In November, President Joe Biden floated the possibility of investigating Mr. Musk’s Twitter buyout as a potential national security issue due to his foreign business ties.
In May of last year, prior to Mr. Musk’s takeover, Twitter agreed to pay a $150 million FTC fine for violating a 2011 consent decree to protect user privacy on the platform. In a July 13 filing (pdf), Mr. Musk’s legal team filed a motion requesting that the company be let out of the 2011 FTC agreement, alleging the federal agency’s efforts to enforce the 12-year-old agreement had become increasingly politicized and biased in the time since Mr. Musk began preparing to take ownership of the social media platform. Twitter’s attorneys argued that the May 2022 FTC fine came around the time Mr. Musk first began talking about buying out the social media platform.
Mr. Musk’s legal team further argued that around the time Mr. Musk closed on his Twitter buyout, the FTC began ramping up its regulatory actions against Twitter and it’s new holding company, X Corp.
“The FTC embarked on a new campaign of unceasing demands, demanding responses to long lists of wide-ranging questions and requiring burdensome document productions,” the Twitter legal team argued in their July 13 filing. “These demands began during a period of unprecedented change and restructuring at Twitter, and started before Twitter was even required to comply with many of the order’s provisions. Since Mr. Musk acquired Twitter, the FTC has issued 16 demand letters to X Corp., a rate of approximately one letter every other week, a stark contrast to the approximately 28 demand letters the FTC issued in the decade-plus period it oversaw Twitter’s compliance with the prior consent order.”
From NTD News