After a week of headlines related to Elon Musk becoming Twitter’s largest shareholder, the billionaire is being sued for waiting too long to disclose his 9.2 per cent stake in the social media company.
A proposed class action lawsuit was filed in Manhattan federal court on Tuesday by Marc Bain Rasella, an investor who sold Twitter shares before Musk announced his stake in the company on April 4.
That day, Twitter shares rose 27 per cent, from US$39.31 to $49.97, as investors raced to buy stock in the company to which the richest person in the world had ostensibly given his vote of confidence.
U.S. federal law requires investors to disclose to the U.S. Securities and Exchange Commission (SEC) within 10 days when they have acquired five per cent of a company, which in Musk’s case would have been March 24.
Between March 25 and 29, Rasella said he sold 35 Twitter shares at an average price of $39.23, amounting to $1,373. He claims that Musk defrauded investors like him, who sold Twitter shares at lower prices between March 24 — when Musk’s announcement should have been made public — and April 4 — when it actually was made public.
“Plaintiff and the Class would not have sold Twitter’s securities at the price sold, or at all, if they had been aware that the market prices had been artificially and falsely deflated by Defendant’s misleading statements,” the lawsuit said.
The lawsuit also alleges that, by waiting to disclose his stake, Musk saved about $143 million by purchasing even more Twitter shares at a lower price after the SEC deadline passed.
The lawsuit seeks unspecified compensatory and punitive damages.
A lawyer for Musk had no immediate comment and Twitter declined to comment on the suit.
On April 5, Twitter announced that Musk would join its board of directors, but in a quick reversal, it was made public on Monday that Musk would not take the appointment.
If Musk had joined Twitter’s board, he would have been bound as a fiduciary for the company, closing off the option of a hostile takeover and limiting what the billionaire could say about the social media platform.
By choosing not to join, Musk can keep buying shares in Twitter without being constrained by his agreement with the company to limit his stake to 14.9 per cent.
As the company’s largest stakeholder, some analysts have suggested Musk could push Twitter to make changes, or even pursue a hostile bid for the company.
— With files from Reuters