Elon Musk has been sued by former Twitter shareholders who claim they missed out on recent rises in its stock price because he waited too long to disclose his stake in the company.
- Elon Musk purchased a 9.2 per cent stake in Twitter in March
- His purchase of Twitter shares prompted the stock price to rise significantly
- Fomer shareholders say he did not disclose his stake in the company in time for them to benefit from the rising share price
In a proposed class action filed in Manhattan federal court, the shareholders said Mr Musk made “materially false and misleading statements and omissions” by failing to reveal he had invested in Twitter by March 24, as required under federal law.
Mr Musk, who is also the chief executive of SpaceX and Tesla, purchased a 9.2 per cent stake in Twitter on March 14.
The purchase made him the largest shareholder in the company.
After Mr Musk disclosed his stake on April 4, Twitter shares rose by 27 per cent to $US49.97 ($67.13), which investors viewed as a vote of confidence from the world’s richest person.
US securities law requires investors to disclose within 10 days when they have acquired 5 per cent of a company, which in Mr Musk’s case would have been March 24.
The former shareholders, led by Marc Rasella, said the delayed disclosure let Mr Musk buy more Twitter shares at lower prices, while defrauding them into selling at “artificially deflated” prices.
Mr Rasella said he sold 35 Twitter shares for $US1,373 ($1,844) or an average price of $US39.23 ($52.69) between March 25 and 29.
The lawsuit seeks unspecified compensatory and punitive damages.
A lawyer for Mr Musk had no immediate comment. Tesla is not a defendant.
Twitter announced on April 5 that Mr Musk would join its board of directors, but this week the company’s chief executive said he had decided not to.
In a note to staff, Twitter’s chief executive Parag Agrawal said the social media giant would still be “open to” Mr Musk’s input.
By not joining the board, Mr Musk can keep buying shares without being bound by his agreement with the company to limit his stake to 14.9 per cent.
Mr Musk is a prolific Twitter user and has previously said he planned to bring about significant improvements at the company.
Before taking a stake in the company, Mr Musk ran a Twitter poll asking users if they believed Twitter adhered to the principles of free speech.
A day after becoming the largest shareholder, he launched another poll asking users if they wanted an edit button — a feature Twitter engineers have been working on.
Some analysts have also suggested Mr Musk could use his stake to push Twitter to make changes, or even pursue an unsolicited bid for the company.
Mr Musk is worth $US265.1 billion ($355.8 billion), according to Forbes magazine.