merelygifted:

Lawsuit: Musk’s illegal delay caused investors to sell at artificially low price

Elon Musk is facing a shareholder lawsuit over his failure to reveal his investment in Twitter until 11 days after a deadline set by federal law.

Musk started buying Twitter stock in January and acquired more than 5 percent of all shares by March 14, the lawsuit said. Under US law, “Musk was required to file a Schedule 13 with the SEC within 10 days of passing the 5 percent ownership threshold in Twitter, or March 24, 2022,” said the complaint filed yesterday in US District Court for the Southern District of New York.

Twitter’s stock rose 27 percent on April 4 when Musk revealed his 9.2 percent stake. This means that investors who sold before April 4 missed out on the gains and that Musk was able to keep buying shares at artificially low prices, the class action complaint said:

Investors who sold shares of Twitter stock between March 24, 2022, when Musk should 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.

Musk was motivated to delay his Schedule 13 filing. By failing to disclose his ownership stake via Schedule 13, Musk was able to acquire shares of Twitter less expensively during the Class Period. As a result of the foregoing, throughout the Class Period, Defendant Musk made materially false and misleading statements by failing to disclose to investors that he had acquired a 5% ownership stake in Twitter as required by Section 13(d) of the Exchange Act and SEC Rule 13d-1 promulgated thereunder, 17 C.F.R. § 240.13d-1.

The Washington Post reported last week that Musk’s disclosure of his Twitter stake was 11 days late and that the “omission may have earned him $156 million.” The shareholder lawsuit puts that number at $143 million. Musk hasn’t explained why he delayed.

“Musk’s windfall may come with a slap on the wrist in the form of a fine from the SEC but will probably be limited to hundreds of thousands of dollars, according to the legal and security experts,” the Post wrote. Musk’s Twitter shares are worth over $3 billion.  …