Elon Musk was sued on Tuesday by former Twitter shareholders who claim they missed out on the recent run-up in its stock price because he waited too long to disclose a 9.2 per cent stake in the social media company.
In a proposed class action filed in Manhattan federal court, the shareholders said Mr Musk, the chief executive of electric car company Tesla, made “materially false and misleading statements and omissions” by failing to reveal he had invested in Twitter by March 24th as required under federal law.
Twitter shares rose 27 per cent on April 4th, to $49.97 from $39.31, after Mr Musk disclosed his stake, which investors viewed as a vote of confidence from the world’s richest person in San Francisco-based Twitter.
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.
Punitive damages
The lawsuit seeks unspecified compensatory and punitive damages.
A lawyer for Mr Musk had no immediate comment. Tesla is not a defendant.
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 24th.
Twitter announced on April 5th that Mr Musk would join its board of directors, but this week said he had decided not to. By not joining the board, Mr 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 per cent.
Some analysts have suggested Mr Musk could push Twitter to make changes, or even pursue an unsolicited bid for the company.
Mr Rasella said he sold 35 Twitter shares for $1,373, or an average price of $39.23, between March 25th and 29th.
Mr Musk is worth $265.1 billion, according to Forbes magazine. – (Reuters)
