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.”
The lawsuit further states that by failing to disclose his ownership stake within the specified time period, the businessman was able to acquire shares of Twitter less expensively.
It also claims that Musk “made materially false and misleading statements and omissions” by failing to disclose to investors that he had acquired a five percent ownership stake in Twitter as required by section 13.
“Plaintiff Marc Bain Rasella sold shares of Twitter at artificially deflated prices” during that time period, and “has been damaged by the revelation of the Musk’s material misrepresentations and material omissions,” the lawsuit states.
“The members of the class [action lawsuit] are so numerous that joinder of all members is impracticable,” said Rasella in the lawsuit, adding that he believes that there are “hundreds or thousands” of people were involved in the lawsuit and that it will provide “substantial benefits to the parties and the court.”
Plaintiffs in the lawsuit are seeking unspecified compensatory and punitive damages but note that Musk saved approximately $143 million on his Twitter purchases by filing his form after the SEC deadline and “purchasing additional shares at deflated prices.”
The Epoch Times has contacted spokespersons for Musk and Twitter for comment.
The lawsuit comes after Musk declined a seat on Twitter’s board of directors on April 11 in a surprise move announced by Twitter CEO Parag Agarwal.
Agarwal said in a Sunday night post on Twitter, “Elon’s appointment to the board was to become officially effective 4/9, but Elon shared that same morning that he will no longer join the board. I believe this is for the best.”