Elon Musk’s Twitter venture has hit a roadblock after a stakeholder filed a class-action lawsuit over the handling of his $3 billion investment.
Marc Rasella launched legal action against the tech billionaire, claiming Musk delayed disclosing his stake in the social media juggernaut in order to buy more shares at a lower price.
The shareholder accuses Tesla boss of violating a deadline to reveal that he had purchased a stake of at least 5 per cent until he’d almost doubled his stake to more than 9 per cent.
Under securities law, Musk was required to file the paperwork with SEC by March 24, which was 10 days following his 5 per cent purchase.
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However, he failed to do so until April 4th - netting him a potential AU$209 million (US$156 million), at the expense of other shareholders who were not able to similarly profit.
The lawsuit states: “Investors who sold shares of Twitter stock between March 24, 2022, when Musk was required to 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’s regulatory filings show that he bought a little more than 620,000 shares on January 31 and continued to accumulate more shares every trading day through to April 1.
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The lawsuit alleged that on March 14, Musk had reached a 5 per cent stake, requiring him to publicly disclose his holdings under the US securities law.
After Musk disclosed his investment on April 4, Twitter shares rose by 27 per cent, with investors viewing it as a vote of confidence from the world’s richest person.
Mr Rasella said he sold 35 Twitter shares for AU$1,844 (US$1,373) for an average price of AU$52.69 (US$39.23) between March 25 and 29.
He says the delay in Musk’s disclosure of his investment meant that sellers were defrauded into selling at ‘artificially deflated’ prices.
The lawsuit comes as Musk continues to be outspoken about the changes he wants to make to the company.
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Last week, Elon suggested Twitter should trial the commonly requested edit button, with the social media company confirming they would indeed be rolling out the feature.
Other proposals included making the Twitter Blue service cheaper, banning advertising, and even having the option to pay in cryptocurrency.
He even set up a poll that asked: “Convert Twitter SF HQ to homeless shelter since no one shows up anyway?”
The poll hit more than 1.9 million votes, with 91.3 per cent of voters in favour of the proposition.
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Musk may just need to stall on those changes in the meantime.
Jayden Collins