The investor claims that Musk’s decision to wait until April to announce his acquisition of an almost-10% stake in Twitter violated federal securities law.
A Twitter investor has filed a lawsuit and proposed a class action against Tesla founder Elon Musk, who recently acquired a significant stake in Twitter.
According to NBC News, the lawsuit suggests that Musk may have violated federal law by not disclosing his purchase to the Securities and Exchange Commission sooner.
In his complaint, plaintiff Marc Rasella claims that he lost money by selling shares of Twitter at “artificially deflated prices” because Musk waited beyond the mandated S.E.C. deadline to publicly disclose his new stake in Twitter.
NBC News notes that Musk disclosed in an S.E.C. filing dated April 4 that he purchased shares amounting to a 9.2% interest in Twitter.
The purchase made Musk the largest outside shareholder at the social media company.
After Musk announced his acquisition, Twitter’s average share price rose by more than 27%.
Now, Rasella has told a Manhattan-based federal court that Musk was required by law to inform the S.E.C. of his acquisition within 10 days of passing a 5% ownership threshold.
“Defendant had the obligation, ability, and opportunity to prevent the issuance of the false statements and omissions alleged herein,” the proposed class action states. “Because of his position as a 5% owner in Twitter, and access to material non-public information available to himself but not to the public, Defendant Musk knew that the adverse facts specified herein had not been disclosed to and were being concealed from the public and that the omissions being made were false and misleading.”
If Musk had followed the law cited by Rasella, the Tesla founder and billionaire would have had to have reported his purchase on March 24.
“Plaintiff and the Class would not have sold Twitter’s securities at the price sold, or at all, if they had been aware that the market prices had been artificially and falsely deflated by Defendant’s misleading statements,” the lawsuit says.
The Hollywood Reporter observes that Musk has a history of brazenly flouting securities laws. In 2018, for instance, Musk settled S.E.C. allegations that he misled investors by erroneously tweeting that he had secured sufficient capital to make Tesla private.
After the settlement, Musk was obliged to step down as Tesla’s chairman and agreed to have all of his tweets reviewed by lawyers before posting.
However, Musk—unlike many other individuals accused of securities misconduct—has blatantly told the press that he does not care for the S.E.C. and its regulations.
“I want to be clear,” Musk said in a 2018 interview with 60 Minutes, “I do not respect the S.E.C.”
The Associated Press notes that Musk did not respond to its journalists’ requests for comment.