Elon Musk is being sued by former Twitter shareholders over his recent acquisition.
In a recent filing with the US Securities and Exchange Commission (SEC), it was revealed the Tesla and SpaceX chief now holds a 'passive' stake in the social media giant; more precisely, he owns 9.2 percent.
Musk was originally set to join the social media firm's board of directors, but its chief executive Parag Agrawal announced this wouldn't be the case going forward.
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While Musk clearly has more than a few thoughts on how Twitter could evolve, specifically concerning an edit button and changes to the Twitter Blue subscription service, others have voiced concerns over how he bought his shares in the first place.
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In a new proposed class action filed in Manhattan federal court, former shareholders have accused Musk of making 'materially false and misleading statements and omissions' by failing to declare his stake surpassing five percent to the SEC.
Musk reportedly reached five percent on 14 March, but only disclosed this publicly on 4 April, allowing him to keep the stock price low while buying up shares at a lower price.
When Musk disclosed his stake, Twitter's share price rose from $39.31 to $49.97. The shareholders allege this allowed Musk to buy up more shares at the lower price, while causing others to sell their shares at 'artificially deflated' prices.
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They then 'missed the resulting share price increase as the market reacted to Musk's purchases and were damaged thereby', the suit notes.
The lawsuit, led by Marc Rasella, is seeking unspecified compensatory and punitive damages, as per Reuters. Musk and his lawyer have yet to comment on the case.
Musk's acquisition attracted criticism from other experts. David Kass, a finance professor at University of Maryland’s business school, told The Washington Post: "I really don’t know what’s going through his mind. Was he ignorant or knowledgeable that he was violating securities law?"
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It's unlikely the SEC will ask Musk to hand over the profits he pocketed from the delayed disclosure, according to Adam Pritchard, a professor of securities law at University of Michigan’s law school.
He said the commission 'would have to be really angry with him to try that because they would have a good chance of a court rejecting that argument'.
On Musk's decision to not join the board of directors, Agrawal said it was 'for the best... we have and will always value input from our shareholders whether they are on our board or not. Elon is our biggest shareholder and we will remain open to his input.'
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Topics: Elon Musk, Twitter, Technology
