Former shareholders led by Marc Rasella claimed that the delayed disclosure allowed Musk to purchase more Twitter shares at lower prices while duping them into selling at “artificially deflated” prices.
Former Twitter Inc shareholders sued Elon Musk on Tuesday, claiming they missed out on the recent run-up in the company’s stock price because he waited too long to disclose a 9.2 percent stake in the social media company.
The shareholders claimed in a proposed class action filed in Manhattan federal court that Musk, the CEO of electric car company Tesla Inc, made “materially false and misleading statements and omissions” by failing to disclose his investment in Twitter by March 24, as required by federal law.
Twitter shares rose 27 percent on April 4, to $49.97 from $39.31, after Musk disclosed his stake, which investors interpreted as a vote of confidence in San Francisco-based Twitter from the world’s richest person.
Former shareholders led by Marc Rasella claimed that the delayed disclosure allowed Musk to purchase more Twitter shares at lower prices while duping them into selling at “artificially deflated” prices.
Unspecified compensatory and punitive damages are sought in the lawsuit.
Musk’s lawyer had no immediate comment. Tesla is not a defendant in this case.
According to US securities law, investors must disclose within 10 days of acquiring 5% of a company, which is Musk’s case would have been March 24.
Musk was supposed to join Twitter’s board of directors on April 5, but he backed out this week. Musk, a frequent Twitter user, can continue to buy shares without being bound by his agreement with the company to limit his stake to 14.9 percent.
According to some analysts, Musk could press Twitter to make changes or even make an unsolicited bid for the company.
Rasella stated that between March 25 and 29, he sold 35 Twitter shares for $1,373, or an average price of $39.23. According to Forbes magazine, Musk is worth $265.1 billion.
Rasella v Musk, No. 22-03026, U.S. District Court, Southern District of New York.
