Elon Musk, the CEO of Tesla and SpaceX, is currently facing a lawsuit from Twitter shareholders alleging securities fraud related to his acquisition of the social media platform. The shareholders claim that Musk failed to disclose his significant stake in Twitter within the required timeframe, resulting in financial losses for investors who sold their shares at deflated prices.
According to U.S. securities regulations, investors must disclose when they acquire more than 5% of a company's shares within ten days. Musk reportedly surpassed this threshold on March 14, 2022, but did not make his holdings public until April 4, 2022—11 days past the deadline. This delay allegedly allowed Musk to purchase additional shares at artificially low prices, saving him approximately $150 million and harming investors who sold their stock during this period.
The lawsuit, filed in the U.S. District Court for the Northern District of California, accuses Musk of market manipulation and seeks class-action status on behalf of investors who sold Twitter stock between March 14 and April 4, 2022. The plaintiffs argue that Musk's delayed disclosure and subsequent public statements about Twitter's future caused the company's stock price to fluctuate, negatively impacting shareholders.
In addition to this shareholder lawsuit, the U.S. Securities and Exchange Commission (SEC) has initiated legal action against Musk for his delayed disclosure of Twitter stock purchases. The SEC alleges that Musk violated securities laws by not reporting his 5% stake within the mandated ten-day period, which purportedly enabled him to acquire shares at a lower price, disadvantaging other investors.
Musk's legal team has dismissed the SEC's lawsuit as unfounded, describing it as a "sham" and asserting that Musk did nothing wrong. They argue that the case is part of a broader pattern of harassment against Musk by the SEC.
These legal challenges underscore the complexities and potential pitfalls that can arise during high-profile corporate acquisitions, especially concerning compliance with securities regulations and the timing of disclosures. As the cases proceed, they are likely to provide further insights into the obligations of major investors and the enforcement priorities of regulatory agencies