Billionaire businessman Elon Musk has been sued by former Twitter shareholders over claims that they missed out on the jump in its stock price because he delayed in revealing that he had acquired a 9.2% stake in the microblogging platform.
According to Reuters, the shareholders filed a proposed class action in Manhattan federal court, New York, where they said Musk made “materially false and misleading statements and omissions” by not revealing he had invested in Twitter by March 24 as federal law requires.
The United States securities law requires investors to declare when they have acquired 5% of a company within 10 days, which in the Tesla CEO’s case would have been on March 24.
Following Musk’s disclosure of how much Twitter stake he purchased, its shares rose from $39.31 to $49.97 which investors saw as a vote of confidence from him.
The former shareholders, led by Marc Rasella, said the delayed disclosure let Musk buy more Twitter shares at lower prices while defrauding them into selling at “artificially deflated” prices.
Rasella said he sold 35 Twitter shares at about $39.23 per share for a total of $1,373 between March 25 and 29. If Musk had announced prior to this, the stock would have risen and Rasella would have been able to sell at the new price of $49.97 per share.
The lawsuit seeks unspecified compensatory and punitive damages.
Musk had become the largest shareholder in Twitter after acquiring a 9.2% stake in the company. Following that, Twitter CEO, Parag Agrawal, revealed that Musk would be joining the board of Twitter a member, to which Musk replied that he was looking forward to it.
Musk, who is currently the richest person in the world, later made a U-Turn and rejected the offer to join the board. The move means he can continue buying shares in the company because he would not be subject to an agreement that Twitter has with its board members that limit them to owning a maximum of 14.9% stake in the company.
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