Twitter investors sue Elon Musk for failing to promptly disclose the size of his stake

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Elon Musk’s Twitter profile displayed on a computer screen and Twitter logo displayed on a phone screen are seen in this illustration photo taken in Krakow, Poland on April 9, 2022.
Jakub Porzycki | Nurphoto | Getty Images

A group of Twitter shareholders are suing Elon Musk for allegedly failing to disclose he had bought a significant stake in the social media company in the right timeframe.

The Tesla and SpaceX CEO revealed on April 4 that he had amassed a 9.2% stake in Twitter, leading shares to soar as investors viewed the move as a vote of confidence.

But his disclosure may have been too late.

Federal trade laws dictate that investors must inform the Securities and Exchange Commission within 10 days when they take a more than 5% stake in a company.

Musk, who started buying Twitter stock in January, allegedly hit this milestone on March 14, meaning he should have informed the SEC by March 24.

A representative for Musk, the richest person in the world, did not immediately respond to a CNBC 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 buy up more Twitter stock at a deflated price in the period between passing the 5% threshold and publicly disclosing his stake.

Half a dozen legal and securities experts have told The Washington Post that the delay may have helped Musk to net $156 million.

Twitter’s stock popped 27% on Apr. 4 after it was disclosed that Musk had amassed his 9.2% stake, worth almost $3 billion.

The class action case has been filed on behalf of investors who claim they lost out on potential gains they could have realized had Musk disclosed his shareholding earlier.

“What seems crystal clear is that Elon Musk missed the applicable 10-day filing deadline under Sections 13(d) and 13(g) of the Securities Act of 1933 to report 5% ownership in a public company,” Alon Kapen, a corporate transaction lawyer with Farrell Fritz, said in a statement shared with CNBC.

“That gave him an extra 10 days in which to buy additional shares (he increased his ownership during that time by an extra 4.1%) before the per share price spike that occurred when he finally announced his holdings on April 4,” Kapen added.

After the disclosure of his Twitter stake, Musk revealed that he also intended to take a seat on the board of the company. However, for reasons that have not been announced, he has decided not to take the seat.

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