Twitter shareholder sues Elon Musk for failing to disclose his substantial stake in a timely manner, which impacted platform’s share price
The world’s richest man Elon Musk is facing another legal headache after a Twitter shareholder filed a class action-seeking lawsuit against him.
Marc Bain Rasella filed the lawsuit against Musk for alleged securities fraud in Manhattan federal court on Tuesday, the Daily Mail reported.
It comes after Musk did not disclose he had acquired a 5 percent stake in Twitter, as per US trading rules, on 24 March, and only went public with an SEC filing on 4 April when he doubled his stake to 9.2 percent.
Musk is a noted user of Twitter and a fierce critic, yet despite that he was invited to join its board of directors.
But on the same day he was due to join the board, Musk suddenly declined the invitation, which was confirmed by Twitter CEO Parag Agrawal on Monday.
Musk not joining Twitter’s board of directors, frees him up to acquire a bigger shareholding in the platform.
Joining the board, would have meant Musk serving on the board until 2024, and agreeing not acquire more than 14.9 percent of the company’s shares.
Therefore, with Musk not joining Twitter’s board, he can acquire as much of Twitter’s shareholding as he likes.
And there is some media speculation that Musk may be considering a hostile takeover of the platform.
Or he could become an activist shareholder, using his sizeable shareholding to pressure Twitter’s management and advance his own agenda for the platform.
But Musk could be in trouble with the US financial regulator, the US Securities and Exchange Commission (SEC) yet again.
It has been widely reported that Musk made $156m, by filing a required SEC form 11 days late.
Investors are supposed to notify the SEC within 10 days when they surpass a five percent stake in a company, which Musk achieved on 14 March, meaning the disclosure deadline should have been 24 March.
But Musk didn’t publicly declare his stake to the SEC until 4 April, by which time he had doubled his stake to 9.2 percent.
During that time Musk continued to buy Twitter stock at $39 per share. When he finally went public, Twitter’s share price by 30 percent to over $50 per share, netting him approximately $156m.
Predictably these manoeuvres have resulted in a lawsuit – a legal issue that Elon Musk is no stranger to.
Last November, investment bank JPMorgan Chase sued Musk and Tesla for $162 million, alleging Elon Musk’s privatisation tweet in 2018 cost it millions of dollars.
Now Twitter investor Marc Bain Rasella is accusing Musk of alleged securities fraud.
The lawsuit alleges the billionaire was required to disclose his holdings to the SEC by 24 March, but the delay kept Twitter’s share price down, allowing Musk to buy more shares at a lower price.
That strategy, the lawsuit alleges, hurt less wealthy investors who sold shares in the San Francisco company in the nearly two weeks before Musk acknowledged holding a major stake.
The lawsuit seeks a jury trial for unspecified compensatory and punitive damages.
Musk did not immediately respond to a request for comment.