Twists and turns in Elon Musk’s tale of acquiring a significant stake in Twitter continue into this week as well, after former Twitter shareholders sued him in the court of Manhattan for making “materially false and misleading statements and omissions”, Reuters reported.
Earlier this month, Musk declared in a filing with the Securities and Exchange Commission (SEC) that he had acquired a nine percent stake in the social media company, Twitter, and the company’s CEO announced that Musk would be joining the board of directors as well. This pumped-up Twitter’s stock price from around $39 a share to close to $50 a share.
A lost opportunity for small investors
Musk’s declaration of the recently gained assets came on the 5th of April. However, as per Federal law in the U.S., any acquisition of a stake beyond 5 percent must be declared within a period of 10 days.
Musk began acquiring Twitter stock as early as January 31st this year at prices of around $36 a share, AP reports. Through April 1st, Musk continued to acquire Twitter stock almost every single trading day, when his cumulative stake had reached 9.1 percent.
According to the lawsuit filed by former Twitter shareholders, Musk had reached the 5 percent stake threshold on March 14th itself and was required to declare his holdings by March 24. By failing to do so and continuing to acquire more Twitter stock, Musk enjoyed the low prices ($36 ~ $39) while increasing his stake, which allegedly saved him $143 million.
Had he declared his assets within the time frame, the litigators argue, the Twitter stock would have risen earlier and minor shareholders would have benefited from the sales they made over the next few days, since the stock price soared 27 percent.
Musk is listed alone as a defendant in this case which is seeking undisclosed monetary compensation and punitive damages, Reuters revealed.
Musk and SEC face-off again?
While the SEC hasn’t commented on the situation so far, it is likely that the regulatory authority has made note of Musk’s moves. Musk’s tussle with the SEC goes as far as 2018 when he was accused of using his Twitter influence to mislead Tesla investors.
Last week, Musk formally declined the seat on the Twitter board, a move that is likely to allow Musk to increase his stake in Twitter even further beyond the 14.9 percent cap that a board member could hold. Musk’s rejection of the seat on the board now allows him to invest further in the company for which he clearly has many ideas and whose stock price is on a downward slide currently.
It will be interesting to see what the SEC finds this time around.