Elon Musk faced shareholder lawsuits for a large purchase of Twitter shares. The prosecution argued that Musk did not disclose his shareholding information in a timely manner as required, saving $143 million.
Twitter shareholders recently filed a lawsuit against Musk because he did not disclose his large purchase of Twitter stock after the maximum period of 11 days stipulated by US federal law. This artificial delay led other investors to sell their own Twitter shares at relatively low prices during this period, which affected earnings.
According to the lawsuit, Musk has been buying Twitter stock since January this year, and the Twitter stock bought on March 14 has exceeded the 5% threshold. A complaint filed Tuesday in U.S. District Court for the Southern District of New York said that under U.S. law, “Musk needs to submit relevant information to the U.S. Securities and Exchange Commission within 10 days of holding more than 5 percent, that is, March 24, 2022.”
On April 4, when Musk revealed that he held 9.2% of the shares, Twitter shares rose 27% in response. This means that investors who sold Twitter stock before April 4 missed this round of rising gains, while Musk was able to continue buying stocks at relatively low prices during this period.
Twitter shareholders explained in the complaint that “on March 24, 2022, Musk should have disclosed the information he held about Twitter shares, but the actual disclosure information was on April 4, 2022.” As the market reacted immediately to Musk buying Twitter stock, investors who sold Twitter stock during this period missed the rally and suffered as a result. ”
Musk has an incentive to delay the submission of relevant information. By not disclosing his shareholding ratio at the required time, Musk was able to continue buying the Twitter stock at a relatively low price during this period. According to the relevant laws, Musk’s shareholding exceeded 5% and failed to disclose information to investors in a timely manner as required, and was suspected of issuing false and misleading statements. ”
It was reported last week that Musk delayed disclosing his Stake on Twitter for 11 days, “an oversight that could have cost him $156 million.” Musk didn’t explain why he delayed making the information public. A lawsuit filed by Twitter shareholders set the figure at $143 million.
“According to legal experts, Musk’s windfall could have been fined by the SEC, but it could have been only a few hundred thousand dollars.” Currently, Musk’s Twitter stock is worth more than $3 billion.
The lawsuit Musk faces were filed by Twitter investor Marc Bain Rasella, who said he “sold Twitter stock at artificially depressed prices during this period” and suffered as a result because “Musk’s material misrepresentations and material underreport” would “induce normal investors to misjudge” the value of the Twitter stock.
La Serra filed a lawsuit on behalf of all investors who sold Twitter shares between March 24 and April 1, 2022. The pleadings seek class-action status, as well as “compensatory and punitive damages” of an unknown amount.
“If plaintiffs and other investors knew that the Market Price of Twitter stock was artificially depressed by defendants’ misleading statements, they would not have sold Twitter stock at the price at the time, or would not have done so at all,” the complaint said. In addition, defendant Musk saved about $143 million by delaying the submission of information and continuing to buy the Twitter stock at a relatively low price. ”
After Musk publicly disclosed his investment information, Twitter announced that Musk would join the board of directors, and the Twitter stock that he agreed to buy would not eventually exceed 14.9%. But musk then opted out of the deal. Analysts speculate that Musk may buy more Twitter stock.