Elon Musk accused in lawsuit of delaying Twitter stake disclosure to buy more shares at lower prices

A complaint in New York federal court accuses the Tesla CEO of failing to disclose a 5 per cent stake in March to increase his stake at lower prices

After Musk revealed this month that he is Twitter’s largest shareholder at more than 9 per cent, he was offered a seat on the board, which he declined

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SpaceX founder and CEO Elon Musk speaks during a news conference after a Falcon 9 SpaceX rocket test flight at the Kennedy Space Center in Cape Canaveral, Florida, on January 19, 2020. Photo: AP

Published: 10:52am, 13 Apr 2022

Elon Musk’s huge Twitter investment took a new twist Tuesday with the filing of a lawsuit alleging that the colourful billionaire illegally delayed disclosing his stake in the social media company so he could buy more shares at lower prices.

The complaint in New York federal court accuses Musk of violating a regulatory deadline to reveal he had accumulated a stake of at least 5 per cent. Instead, according to the complaint, Musk didn’t disclose his position in Twitter until he’d almost doubled his stake to more than 9 per cent. That strategy, the lawsuit alleges, hurt less wealthy investors who sold shares in the San Francisco company in the nearly two weeks before Musk acknowledged holding a major stake.

Musk’s regulatory filings show that he bought a little more than 620,000 shares at US$36.83 apiece on January 31 and then continued to accumulate more shares on nearly every single trading day through April 1. Musk, best known as CEO of the electric carmaker Tesla, held 73.1 million Twitter shares as of the most recent count Monday. That represents a 9.1 per cent stake in Twitter.

The lawsuit alleges that by March 14, Musk’s stake in Twitter had reached a 5 per cent threshold that required him to publicly disclose his holdings under US securities law by March 24. Musk didn’t make the required disclosure until April 4.

That revelation caused Twitter’s stock to soar 27 per cent from its April 1 close to nearly US$50 by the end of April 4’s trading, depriving investors who sold shares before Musk’s improperly delayed disclosure the chance to realise significant gains, according to the lawsuit filed on behalf of an investor named Marc Bain Rasella. Musk, meanwhile, was able to continue to buy shares that traded in prices ranging from US$37.69 to US$40.96.

The lawsuit is seeking to be certified as a class action representing Twitter shareholders who sold shares between March 24 and April 4, a process that could take a year or more.

Musk spent about US$2.6 billion on Twitter stock – a fraction of his estimated wealth of US$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.