SAN FRANCISCO — Elon Musk’s huge Twitter investment took a new twist Tuesday with the filing of a lawsuit alleging that the colorful billionaire illegally delayed disclosing his stake in the social media company so he could buy more shares at lower prices.
Musk was accused by a New York federal court of not disclosing his stake in Twitter before the deadline. Instead, according to the complaint, Musk didn’t disclose his position in Twitter until he’d almost doubled his stake to more than 9%. The lawsuit claims that this tactic hurt the less-rich investors who bought shares in San Francisco’s company two weeks prior to Musk admitting to having a significant stake.
Musk’s regulatory filings show that he bought a little more than 620,000 shares at $36.83 apiece on Jan. 31 and then continued to accumulate more shares on nearly every single trading day through April 1. Musk was the chief executive of Tesla Electric Cars. As of Monday’s latest count, he had 73.1 million Twitter followers. This represents 9.1% of Twitter’s total shares.
The lawsuit alleges that by March 14, Musk’s stake in Twitter had reached a 5% threshold that required him to publicly disclose his holdings under U.S. securities law by March 24. Musk didn’t make the required disclosure until April 4.
That revelation caused Twitter’s stock to soar 27% from its April 1 close to nearly $50 by the end of April 4’s trading, depriving investors who sold shares before Musk’s improperly delayed disclosure the chance to realize significant gains, according to the lawsuit filed on behalf of an investor named Marc Bain Rasella. Musk was still able to purchase shares at prices between $37.69 and $40.96.
A lawsuit has been filed to make the class action a collective one for Twitter shareholders who purchased shares from March 24 through April 4. This could take one year.
Musk spent about $2.6 billion on Twitter stock — a fraction of his estimated wealth of $265 billion, the largest individual fortune in the world. In a regulatory filing Monday, Musk disclosed he may increase his stake after backing out of an agreement reached last week to join Twitter’s board of directors.
Jacob Walker, one of the lawyers that filed the lawsuit against Musk, told The Associated Press that he hadn’t reached out to the Securities and Exchange Commission about Musk’s alleged violations about the disclosure of his Twitter stake. “I assume the SEC is well aware of what he did,” Walker said.
The spokesperson from the SEC refused to comment.
Musk and SEC are arguing in court ever since Musk and Tesla settled allegations that Musk had used his Twitter account for misleading investors about the possibility of a buyout. As part of that deal, Musk was supposed to obtain legal approval for his tweets about information that could affect Tesla’s stock price — a provision that regulators contend he has occasionally violated and that he now argues unfairly muzzles him.
Musk didn’t immediately respond to a request for comment posted on Twitter, where he often shares his opinion and thoughts. Alex Spiro, a New York lawyer representing Musk in his ongoing dispute with the SEC, also didn’t immediately respond to a query from The Associated Press.
Read More From Time