How Starlink took the fall for X’s case in Brazil

Why the use of Starlink’s Assets to pay for X’s fines undermines Brazil’s Rule of Law and Could Strain Foreign Investment.

Business

by Leo Irgendwo
on 4 October 2024

in Issue 1851

While the banning of X, formerly Twitter, in Brazil may have led the headlines, investors would do well to follow the real story – the decision to seize Starlink’s assets to cover the fines imposed on X. Both X and Starlink, a satellite internet service provider, share partial ownership with Elon Musk; however, legally they have no connection, both in the US and Brazil, and have different sets of investors. Bill Ackman, an influential activist hedge fund manager of Pershing Square Capital Management and partial investor in X, expressed a warning, stating the decision could make Brazil "uninvestable" and could lead to capital flight from the country. Although Ackman’s words may be heavy-handed, investors are right to worry about the implications of the ruling and what it could mean for navigating legal uncertainty in the Americas second-largest market.

The episode came to a head on August 17th when X announced the closure of its Brazilian offices, following a prolonged legal dispute within the country’s court system regarding the banning of several accounts alleged to be spreading disinformation. In X’s statement it also cited concerns that representatives of the company could be arrested if it refused to comply with government directives to remove such accounts. In response, on August 29th, Supreme Court Justice Alexandre de Moraes announced the banning of X within the country and levied fines of 18.5 million reals (£2.5 million) for non-compliance with legal requirements for social media companies to maintain local representation within the country. While those familiar with Brazilian law would find the ruling procedural and well within precedent, what was highly unusual was the reason given for seizing Starlink’s assets to cover the fines owed by X. In his ruling, Justice Moraes stated that Starlink and X function as a "de facto economic unit" and therefore Starlink could be held responsible for X’s fines.

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