Elon Musk is being sued by former Twitter shareholders who claim he failed to disclose his stake in the company on time, thus preventing them from profiting when the social media platform’s stocks shot up in price.
The class-action lawsuit was filed in Manhattan federal court by plaintiff and stockholder Marc Bain Rasella, who is suing on behalf of all Twitter shareholders who held stock in the company between March 24 and April 1, 2022.
Tesla CEO Musk acquired a 9.2 percent passive stake in the company earlier this month, making him the social media giant’s biggest individual shareholder.
Shortly after news of the disclosure surfaced, Twitter shares soared, sharply boosting the value of Musk’s stake.
The lawsuit states that Musk began acquiring shares of the social media platform at the start of January and that by March 14, 2022, he had acquired more than a five percent ownership stake in Twitter.
It further states that the businessman was required by the U.S. Securities and Exchange Commission (SEC) to disclose his ownership stake within 10 days after passing the five percent ownership threshold, or by March 24, 2022 — also known as schedule 13 — but that he failed to do until April 4.
“Musk did not file a schedule 13 with the SEC within the required time and instead continued to amass Twitter shares, eventually acquiring a 9.1 percent stake in the company before finally filing a schedule 13 on April 4, 2022,” the lawsuit states.
“When Musk finally filed the required schedule 13, thereby revealing his ownership stake in Twitter, the company’s shares rose from a closing price of $39.31 per share on April 1, 2022, to close at $49.97 per share on April 4, 2022 – an increase of approximately 27 percent.”
Plaintiffs argue that due to Musk’s failure to disclose that he had invested in Twitter by the March 24 deadline as required under federal law, investors who sold their shares between March 24 and April 4 “missed the resulting share price increase as the market reacted to Musk’s purchases and were damaged thereby.”