Elon Musk sued by shareholder over failure to disclose his 5% stake in Twitter
A Twitter shareholder has sued Tesla CEO Elon Musk in a federal securities class action lawsuit citing Musk’s failure to disclose his 5% stake in the social media company Twitter when he was required to do so as sought by the US laws.
The delay allowed Musk to buy more shares of Twitter at a lower price and cheat sellers of Twitter stock out of increased profits, claims the plaintiff.
The Tesla CEO revealed on 4 April that he had acquired a 9.2% stake in Twitter. Shares in the social media company soared, as investors viewed the move as a vote of confidence from the richest man in the world.
However, federal trade laws require that investors notify the Securities and Exchange Commission (SEC) after surpassing a 5% stake in a company within 10 days. Musk acquired his shares on 14 March but did not make that public until 4 April.
The lawsuit has been filed in Manhattan federal court 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,” reports TechCrunch.
According to the lawsuit, Musk began acquiring Twitter shares in January and by March 14, had acquired over 5 percent ownership in Twitter.
“Musk, because of his position as a 5 percent owner in Twitter, had an obligation to file a Schedule 13 with the SEC (Securities and Exchange Commission),” the lawsuit read. The SEC requires investors to file a Schedule 13 within 10 days of passing the 5 percent threshold.
Musk did not submit the filing until he had taken a 9.2 percent stake in Twitter.
“Because of his position as a 5 percent owner in Twitter, and access to material non-public information available to himself but not to the public, defendant Musk knew that the adverse facts specified herein had not been disclosed to and were being concealed from the public and that the omissions being made were false and misleading,” said the lawsuit.
“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%,” reads the lawsuit.
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