A Twitter shareholder is suing Tesla CEO Elon Musk in a federal securities class action lawsuit because Musk failed to disclose his 5% stake in the social media company when he was required to do so. The delay allowed Musk to buy more shares of Twitter at a lower price and cheat sellers of Twitter stock out of increased profits, the plaintiff claims.
The lawsuit was filed in Manhattan federal court on Tuesday by Marc Bain Rasella on behalf of “all investors who sold or otherwise disposed of Twitter, Inc. securities between March 24, 2022 and April 1, 2022, inclusive.”
According to the lawsuit, Musk began acquiring Twitter shares in January and by March 14 had acquired over 5% ownership in Twitter. The U.S. Securities and Exchange Commission requires investors to file a Schedule 13 within 10 days of passing the 5% threshold. Musk apparently did not submit the filing until he had amassed a 9.1% stake in Twitter.
“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 $39.91 per share on April 1, 2022, to close at $49.97 per share on April 4, 2022 — an increase of approximately 27%,” the lawsuit said.
By keeping his growing stake in Twitter quiet, Musk was able to artificially keep the price of the stock down and buy it at a premium, the plaintiff said.
On April 4, Twitter confirmed Musk had purchased 9.2% shares of the company. There was talk of Musk joining Twitter’s board, but Twitter CEO Parag Agrawal reversed that stance earlier this week following a series of tweets from the Tesla executive wondering if Twitter was dying, if the company should convert its San Francisco headquarters into a homeless shelter, and whether the “w” in Twitter should be deleted.