Twitter investors who sold their shares in the 11 days that Elon Musk was late in notifying financial regulators that he’d acquired a considerable stake in the company have sued the Tesla CEO. They claim that Musk’s omission saved him roughly $143 million, while they missed out on significant profits when Twitter shares skyrocketed in light of the news.
“Defendant had the obligation, ability, and opportunity to prevent the issuance of the false statements and omissions alleged herein,” reads the proposed class action filed Tuesday in New York federal court. “Because of his position as a 5% owner in Twitter, and access to material non-public information available to himself but not to the public, Defendant Musk knew that the adverse facts specified herein had not been disclosed to and were being concealed from the public and that the omissions being made were false and misleading.”
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Musk started to acquire shares of Twitter beginning in January. Three months later, he had acquired more than a 5 percent ownership stake.
Under the Securities Exchange Act, Musk was required to notify the financial regulators within 10 days of passing that threshold, the lawsuit says.
Musk instead continued to amass Twitter shares. He waited until April 4, after acquiring 9.1 percent of the company, before filing the required disclosures.
Twitter stock surged at the news of his purchases. Its shares rose from $39.31 on April 1 to $49.97 when Musk disclosed his newest purchase to the Securities and Exchange Commission — an increase of roughly 27 percent.
The lawsuit claims a violation of a federal securities law, specifically a provision that requires disclosure when an investor buys at least 5 percent of a company. It seeks to represent investors who sold stock between March 24 and April 1.
Musk has a history of openly flouting securities laws. In 2018, he settled charges from the SEC accusing him of misleading investors when he erroneously tweeted that he had secured enough funding to take Tesla private. He was required to step down as Tesla’s chairman and have his tweets vetted by lawyers under the agreement. Claiming that he was pressured at the time to protect company shareholders, he moved on March 8 to toss the part of the settlement in which he has to have his tweets reviewed.
In another tweet that may have improperly influenced the market, Musk polled his 63 million Twitter followers in November on whether he should sell 10 percent of his Tesla shares.
“I want to be clear: I do not respect the SEC,” Musk said in 2018 on 60 Minutes. Twitter declined to comment on the lawsuit.
