Investors in Twitter who sold their shares during the 11-day period in which Elon Musk was late in alerting financial regulators that he had purchased a significant stake in the firm have filed a lawsuit against the CEO of Tesla. They allege that Musk’s omission saved him approximately $143 million, while they say that they missed out on large profits when Twitter’s stock price soared as a result of the announcement.
According to the proposed class action lawsuit filed on Tuesday in federal court in New York, “the defendant owed a duty, possessed the ability, and had the opportunity to avoid the issuance of the fraudulent representations and omissions charged herein.” According to the complaint, “because of his position as a 5 percent owner in Twitter, and because he had access to material nonpublic information that was available to him but not to the public, Defendant Musk was aware that the adverse facts specified in this complaint had not been disclosed to and were being concealed from the public, and that the omissions being made were false and misleading.”
Musk began purchasing Twitter stock in January, and has since increased his holdings significantly. Three months later, he had bought a share in the company worth more than 5 percent of the total.
Under the Securities Exchange Act, Musk was supposed to notify the appropriate regulatory authorities in writing no later than 10 days after passing the barrier, according to the lawsuit.
Musk, on the other hand, has continued to accumulate Twitter shares. After acquiring 9.1 percent of the company, he didn’t file the mandatory disclosures until April 4, more than a month after the acquisition.
The news of his purchase caused the shares of Twitter to soar. The company’s stock increased from $39.31 on April 1 to $49.97 on April 2, when Musk declared his latest acquisition to the Securities and Exchange Commission, representing a nearly 27 percent rise.
The lawsuit alleges that a federal securities statute was violated, specifically a section that mandates disclosure when an investor purchases at least 5% of a company’s stock in exchange for cash. It seeks to represent investors who sold stock between March 24 and April 1, according to the company’s website.
A history of blatantly flouting securities regulations may be traced back to Musk. In 2018, he agreed to settle allegations brought by the Securities and Exchange Commission (SEC) that he had misled investors when he falsely claimed that he had secured enough cash to take Tesla private. Under the terms of the deal, he was supposed to resign from his position as chairman of Tesla and have his tweets reviewed by legal counsel. He filed a motion on March 8 to have the portion of the settlement in which he is required to have his tweets evaluated thrown out, claiming that he was under pressure to do so in order to protect firm shareholders.
Musk surveyed his 63 million Twitter followers in November to determine whether he should sell 10 percent of his Tesla stock, which may have had an unintended effect on the stock market.
“I want to be clear: I have no regard for the Securities and Exchange Commission,” Musk stated on 60 Minutes in 2018. Twitter did not respond to a request for comment on the complaint.