A Twitter shareholder on Tuesday filed a securities fraud lawsuit against Elon Musk, alleging that the billionaire Tesla CEO’s late disclosure of his stake in Twitter cost investors money and saved Musk around $143 million.
Marc Bain Rasella filed the suit in federal court in New York and seeks to represent all investors who sold Twitter stock between March 24 and April 1. He argues that because Musk waited days to declare his purchase of Twitter stock, he depressed the share price and ripped off others who sold Twitter stock.
Under securities laws, Musk was supposed to alert the Securities and Exchange Commission within 10 days after purchasing 5% or more of Twitter’s stock.
But Musk did not file his SEC paperwork until April 4, or 11 days after he was supposed to, and by that point, Musk had amassed a more than 9% stake in the social media company, becoming its largest shareholder for the price of about $2.6 billion.
Musk did not return a request for comment.
In his lawsuit, Rasella said by not giving federal regulators a heads-up that he was gobbling up Twitter stock, Musk was essentially able to buy Twitter stock at a discount.
Musk, according to the suit, “made materially false and misleading statements and omissions by failing to disclose to investors that he had acquired a 5% ownership stake in Twitter as required.”
Musk “knew or recklessly disregarded” that he had an obligation to file paperwork with the SEC, according to the suit, which estimates that the delayed filings saved Musk about $143 million, or a tiny fraction of his wealth. Musk is the richest person in the world.
But while the moves may have been a moneymaker for Musk on paper, Twitter shareholders who sold stock during the time period in question were doing so at a artificially low price, the suit says.
“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,” wrote Manhattan-based lawyer Jeffrey Block, who is representing Rasella.
Rasella’s suit is seeking unspecified damages.
The lawsuit is the latest drama involving Twitter and Musk, who, in a dizzying reversal, said he would not be joining Twitter’s board less than a week after he said publicly that he was offered a seat.
Twitter CEO Parag Agrawal did not explain the turnabout beyond saying in a tweet that it was “for the best,” and that “there will be distractions ahead.”
Musk, who is known for frivolous and sometimes trolling content on Twitter, has teased the idea of adding an edit button to Twitter and has floated more outlandish proposals, like converting the company’s San Francisco headquarters into a homeless shelter.