By Aaron Miller-
Elon Musk has been sued by former Twitter shareholders over his recent acquisition for allegedly misleading statements amounting to failure to disclose his true stakes to the SEC which surpassed 5% as required by U.S law.
In a recent filing with the U.S Securities and Exchange Commission (SEC), it was revealed the Tesla and SpaceX chief now holds a ‘passive’ stake in the social media giant; amounting to 9.2%.
The lawsuit alleges that Mr Musk failed to disclose his 9.2% stake in the company, worth almost $3bn, within the proper time to the US Securities and Exchange Commission.
Under U.S law, investors are required to notify the SEC within 10 days of acquiring more than a 5% stake in a publicly listed company.
The new class-action lawsuit accuses Mr Musk of using the gap between his passing the 5% threshold and reporting the stake to acquire additional shares at the “artificially deflated” price.
It is filed in New York on behalf of people who sold their shares between 24 March and 4 April who “missed the resulting share price increase as the market reacted to Musk’s purchases and were damaged thereby”.
Twitter investors who sold their shares in the 11 days that Elon Musk was late in notifying financial regulators that he had acquired a considerable stake in the company have sued the Tesla CEO.
The investors claim that Musk’s omission saved him roughly $143 million, while they missed out on significant profits when Twitter shares skyrocketed following the news.
“Defendant had the obligation, ability, and opportunity to prevent the issuance of the false statements and omissions alleged herein,” reads the proposed class action filed Tuesday in New York federal court. “Because of his position as a 5% 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.”
Musk was originally set to join the social media firm’s board of directors, but its chief executive Parag Agrawal announced a withdrawal of those plans.
Musk’s Twitter mission began on March 25, when he launched a Twitter poll asking followers whether Twitter “rigorously adheres” to the principle that “free speech is essential to a functional democracy.” Musk further suggested that some changes might be happening at Twitter soon.
In a new proposed class action filed in Manhattan federal court, the former shareholders have accused Musk of making ‘materially false and misleading statements and omissions’ by failing to declare his stake surpassing 5% to the SEC.
Musk reportedly reached 5% on 14 March, but only disclosed this publicly on 4th of April, allowing him to keep the stock price low while buying up shares at a lower price.
When Musk disclosed his stake, Twitter’s share price rose from $39.31 to $49.97. The shareholders allege this allowed Musk to buy up more shares at the lower price, while causing others to sell their shares at ‘artificially deflated’ prices.
They then ‘missed the resulting share price increase as the market reacted to Musk’s purchases and were damaged thereby’, the suit notes.
The lawsuit, led by Marc Rasella, is seeking unspecified compensatory and punitive damages. Musk and his lawyer have yet to comment on the case.
Musk, an active tweeter with 81.3 million followers on the platform, has proposed radical changes to the business following his stake acquisition.
Several of the multi-billionaire’s posts have since been deleted. Suggestions included making Twitter’s premium service ad-free, even though the company relies on advertising for 90% of its revenue. “The power of corporations to dictate policy is greatly enhanced if Twitter depends on advertising money to survive,” Musk tweeted.
Other suggestions included asking users if they wanted an edit button – which Twitter followed up by confirming it was working on an editing feature .