Elon Musk is sued for delaying disclosure of Twitter stake
Lawsuit alleges billionaire saved $192m by delaying the filing, while hurting shareholders who sold stock before his position was publicised.
A Twitter shareholder sued Elon Musk, alleging the billionaire committed securities fraud by delaying the disclosure of his stake in the social-media company.
In the lawsuit, filed in the US District Court for the Southern District of New York on Tuesday, Marc Bain Rasella alleges that Mr Musk didn’t properly disclose his Twitter stake within the required time frame, a move that personally benefited Mr Musk and could’ve hurt other shareholders who sold the stock.
Mr Musk, chief executive of Tesla, on April 4 disclosed owning almost 73.5 million shares of Twitter as of March 14. That gave him a 9.2 per cent stake, making him the company’s largest shareholder. Tesla and a representative for Mr Musk didn’t immediately respond to requests for comment.
Investors whose holdings in a company surpass 5 per cent are required to report their stake within 10 calendar days. These filings can send companies’ shares higher as investors anticipate changes spurred by the large shareholder, such as a company sale, stock buyback or new board members.
The lawsuit alleges that Mr Musk should have filed the disclosure form by March 24 and that Twitter investors who sold their shares between March 24 and before Mr Musk’s stake was disclosed April 4 “missed the resulting share price increase as the market reacted to Musk’s purchases and were damaged thereby.” By delaying the filing, Mr Musk saved about $US143m ($A192m) on buying Twitter stock, the lawsuit alleges.
Mr Musk is the world’s richest person with a net worth of $US251b, according to the Bloomberg Billionaires Index.
Mr Rasella, the plaintiff, sold Twitter shares at depressed prices during the period and was damaged by Mr Musk’s material omissions and misrepresentations, the lawsuit alleges. Twitter shares surged 27 per cent the day Mr Musk disclosed his position, the company’s largest one-day rally on record. Mr Rasella filed the suit for himself and on behalf of others similarly situated.
The SEC has previously brought enforcement actions against people who continued to miss these types of deadlines. Lawyers have said Mr Musk’s disclosure issues could hurt the Tesla leader in his legal tussling with the SEC.
Mr Musk recently asked a federal judge to kill a fraud settlement he reached in 2018 with securities regulators that mandates some of his tweets related to Tesla be preapproved by company lawyers.
Mr Musk is known for his use of Twitter, where he has polled users on whether he should sell some of his Tesla stock and questioned whether the social-media platform itself was dying.
Plans for Mr Musk to join Twitter’s board were announced April 5, a day after he disclosed his stake in the company, but were scrapped just days later.
The Wall Street Journal
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