Elon Musk’s Twitter profile is displayed on a computer screen and the Twitter logo displayed on a phone screen in this illustration taken in Krakow, Poland on April 9, 2022.
Jacob Borzeki | Norfoto | Getty Images
A group of Twitter shareholders is suing Elon Musk for his alleged failure to disclose that he had bought a significant stake in the social media company in the appropriate timeframe.
The CEO of Tesla and SpaceX revealed on April 4 that it had amassed a 9.2% stake in Twitter, sending shares higher as investors viewed the move as a vote of confidence.
But it may be too late to reveal it.
Federal trade laws dictate that investors must notify the Securities and Exchange Commission within 10 days when they take more than 5% of a company’s stock.
Musk, who began buying Twitter shares in January, allegedly achieved the feat on March 14, meaning he should have reported to the Securities and Exchange Commission by March 24.
A representative of Musk, the world’s richest person, did not immediately respond to CNBC’s request for comment.
The lawsuit, filed Tuesday in New York by law firm Block & Leviton on behalf of several Twitter shareholders, alleges that Musk was able to purchase more Twitter shares at a discount in the period between exceeding the 5% limit and publicly disclosing his stake.
Half a dozen legal and securities experts told the Washington Post that the delay may have helped Musk get $156 million.
Twitter stock surged 27% on April 4 after it was revealed that Musk had amassed his 9.2% stake, which is worth about $3 billion.
The class action lawsuit is being filed on behalf of investors who claim they lost out on potential gains they would have recognized had Musk disclosed his ownership earlier.
“What seems quite clear is that Elon Musk missed the 10-day filing deadline under Sections 13(d) and 13(g) of the Securities Act of 1933 to report a 5% ownership in a public company,” Elon Cabin, firm of transaction attorneys with Farrell Fritz, in a joint statement with CNBC.
“This gave him an extra 10 days to buy additional shares (increasing his ownership over that period by an additional 4.1%) before the share price rally that occurred when he finally announced his holdings on April 4,” Kabin added.
After revealing his stake on Twitter, Musk revealed that he also intends to take a seat on the company’s board of directors. However, for reasons that were not announced, he decided not to take the seat.