A Twitter shareholder is suing Elon Musk for failing to disclose that he had bought a substantial stake in the company, affecting share prices.
The Tesla CEO revealed on 4 April that he had acquired a 9.2% stake in Twitter. Shares in the social media company soared, as investors viewed the move as a vote of confidence from the richest man in the world.
However, federal trade laws require that investors notify the Securities and Exchange Commission (SEC) after surpassing a 5% stake in a company within 10 days. Musk acquired his shares on 14 March but did not make that public until 4 April.
In the time between passing the 5% threshold and publicly reporting, Musk was able to buy up additional shares at a deflated price, the new lawsuit alleges. Experts estimate that delay may have illegally netted Musk $ 156m.
Filed in a New York federal court on Tuesday, the suit seeks class action status on behalf of investors who sold Twitter stock during that time and lost out on gains they would have realized had Musk disclosed his stake earlier.
After Musk disclosed his stake, Twitter shares rose 27% – from $ 39.31 to $ 49.97. The plaintiff in the suit sold 35 Twitter shares for $ 1,373, or an average price of $ 39.23, before Musk revealed his investments.
Jeffrey Block, of the law firm representing the plaintiff, confirmed the suit had been filed as of Tuesday. The lawsuit seeks a jury trial for unspecified compensatory and punitive damages. Musk did not immediately respond to a request for comment.
The SEC did not immediately respond to a request for comment regarding whether it would also take action against Musk.
Musk’s announcement that he had acquired a 9.2% stake – making him the company’s largest shareholder at the time – caused immediate controversy. Many speculated the acquisition could allow Musk, a vocal critic of Twitter, to push the company to make broader changes.
Twitter announced on 5 April that Musk would join its board of directors, but on Sunday, Twitter’s CEO, Parag Agrawal, announced abruptly that Musk would not be joining the board after all.
By not joining the board, Musk, a prolific Twitter user, can keep buying shares without being bound by his agreement with the company to limit his stake to 14.9%. After the news of the U-turn broke, Musk tweeted and then deleted a hand-over-mouth emoji.
Reuters contributed to this report
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