An investor in Twitter has filed a lawsuit against Elon Musk over the billionaire’s secret purchase of Twitter stock that sent the price soaring after it became public. Musk bought his enormous slice of Twitter shares on March 24, but the public didn’t learn about it until April 4.
Marc Rasella filed a lawsuit in federal court on Tuesday alleging that Musk’s failure to disclose his purchase of 9.2% of Twitter stock quickly enough caused Rasella to lose money. Rasella sold shares while Musk’s stock purchases weren’t yet public.
SEC rules state that large purchases of stock must be reported to the regulatory agency through the filing of a Schedule 13 after anyone acquires more than 5% of a company. Musk didn’t file the document until April 4, 2022, a full ten days after Musk reached the 5% threshold, and a major breach of the law.
Twitter’s stock price rose roughly 27% after the billionaire finally filed the right paperwork. Rasella sold shares during the period when Musk’s purchase was a secret and he wants his lawsuit to get class action status, involving anyone who sold their shares when Musk was in violation of the law.
Rasella’s suit also points out that Musk was able to purchase more shares at an artificially inflated price after he breached the 5% mark and before he stopped buying to land at his 9.2% ownership stake.
From the lawsuit, filed in Manhattan, and obtained by NBC News:
Investors who sold shares of Twitter stock between March 24, 2022, when Musk was required to have disclosed his Twitter ownership, and before the actual April 4, 2022 disclosure, missed the resulting share price increase as the market reacted to Musk’s purchases and were damaged thereby.
By failing to disclose his ownership stake via Schedule 13, Musk was able to acquire shares of Twitter less expensively during the Class Period.
Musk was supposed to join Twitter’s board of directors, but ducked out at the last minute. It’s not clear why Musk opted not to join the board, but there’s speculation he may want to pursue an even larger portion of the company, something he would’ve been prohibited from doing if he joined the board.
Where’s the SEC in all of this? It’s not clear whether Musk will face any consequences for his secretive dealings and clear violations of securities law. The most likely scenario is that Musk could face a fine. But as the wealthiest person on the planet, worth about $274 billion, he’ll probably be okay at the end of the day.