Elon Musk is being sued by former Twitter (TWTR) shareholders who claim they missed out on
the recent run-up in the social media company’s stock price because Musk waited too long to
disclose his 9.2% stake.
In a class action lawsuit filed in New York federal court, the shareholders claim that Musk, the
chief executive officer (CEO) of electric car maker Tesla (TSLA), made “materially false and
misleading statements and omissions” by failing to reveal he had invested in Twitter by March
24 as required under federal law.
Twitter shares rose 27% on April 4, to $49.97 from $39.31, after Musk disclosed his 9.2% stake
in the company, which investors viewed as a vote of confidence in San Francisco-based Twitter.
Former shareholders led by Marc Rasella said the delayed disclosure let Musk buy more Twitter
shares at lower prices, while defrauding them into selling at “artificially deflated” prices. The
lawsuit seeks unspecified compensatory and punitive damages from Musk.
U.S. securities laws require investors to disclose within 10 days when they have acquired 5% of
a company, which in Musk’s case would have been March 24.
Twitter announced on April 5 that Musk would join its board of directors, but this week said he
had decided not to join the board. By not joining the board, Musk, a prolific Twitter user, can
keep buying shares without being bound by his agreement with the company to limit his stake to
14.9%.
Some analysts have suggested Musk could push Twitter to make changes, or even pursue a
takeover of the company.
In the lawsuit, Rasella said he sold 35 Twitter shares for $1,373, or an average price of $39.23,
between March 25 and 29. Musk is worth an estimated $265 billion, according to Forbes
magazine.
Twitter’s stock is now up 4% year to date at $44.48 U.S. per share.