The lawsuit claims Musk kept share prices low by failing to disclose his newly acquired stake to the SEC on time, ‘damaging’ investors who sold shares during that period.
Elon Musk is being sued by a Twitter shareholder for failing to promptly disclose that he had bought a significant stake in the company, impacting share prices.
According to the lawsuit documents shared by Protocol yesterday (12 April), Musk was required by federal law to notify the US Securities and Exchange Commission (SEC) within 10 days once he passed a 5pc stake in Twitter.
The Tesla CEO had been acquiring shares since January and acquired 5pc by 14 March, meaning he needed to notify the SEC by 24 March.
The lawsuit document states that Musk continued to amass shares before notifying the SEC. An SEC filing was published on 4 April outlining that he had acquired more than 9pc of Twitter’s shares.
This made Musk one of the company’s largest shareholders, with a greater stake than company co-founder and former CEO Jack Dorsey. Shares went up more than 25pc after the news became public.
The lawsuit claims that investors who sold shares during the period when Musk was supposed to reveal his stake missed the share price increase from the market reaction “and were damaged thereby”.
“By failing to disclose his ownership stake,” the lawsuit adds, “Musk was able to acquire shares of Twitter less expensively” during the period after the 24 March deadline.
There has been confusion regarding Musk’s involvement with Twitter over the past couple of weeks. On 5 April it was revealed that Musk would be joining the board of directors with plans to bring “significant improvements” to the social media platform.
However, Twitter CEO Parag Agrawal shared a memo on 11 April that said Musk chose not to join the board after all.
According to a document shared by Axios, Musk would have been limited to a maximum stake of 14.9pc in the company if he became a board member.
Musk has also been critical of Twitter in recent weeks. On 25 March, he asked his more than 80m followers in a tweet whether Twitter “rigorously adheres” to the principle of free speech.
“Given that Twitter serves as the de-facto public town square, failing to adhere to free speech principles fundamentally undermines democracy,” he added in a follow-up tweet. “What should be done?”
He then asked followers whether a new social media platform was needed, and said he was giving “serious thought” to building one.
Musk is a regular user of Twitter but some of his tweets have gotten him into hot water. In 2018, he tweeted that there was “funding secured” to take Tesla private, but the SEC found his series of tweets to be “false and misleading”. This led to a settlement, fines and Musk stepping down as chair of the company.
Elon Musk at a Tesla shareholders meeting in 2016. Image: Steve Jurvetson via Flickr (CC by 2.0)
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