Elon Musk’s unusual tangle with Twitter – which he now wants to buy – has caught the attention of Silicon Valley and the social media world, but also some securities attorneys.
Even before Mr. Musk announced Thursday morning that he had offered to buy Twitter for $43 billion, his amassing last month of a large block of shares in the social media company caught the attention of a law firm suing the billionaire.
On Tuesday, law firm Block & Leviton filed a federal lawsuit against Musk on behalf of several Twitter shareholders who said they incurred losses while Tesla CEO was building more than 9% of Twitter’s stock. The lawsuit seeks class-action status and asserts that Twitter investors who sold shares late last month may have lost out on potential gains because Mr. Musk did not immediately disclose his large ownership stake.
The civil complaint indicated that Mr. Musk revealed that he had amassed 9% of Twitter’s shares – making him the company’s largest shareholder at the time – on April 4, although he had begun building his stake much earlier. When Mr. Musk finally disclosed his stake in Twitter, the company’s stock price rose to $49.97 from $39.31. The lawsuit asserts that Mr. Musk had to disclose in a regulatory filing by March 24 that he had acquired a 5% stake in Twitter.
The Securities and Exchange Commission requires investors to publicly disclose that they have acquired a 5 percent or more ownership stake in a company within 10 days of acquiring the shares — a rule primarily intended to compel investment managers such as hedge funds to disclose their actions in the market.
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The billionaire’s bid could be worth more than $40 billion and have far-reaching consequences for the social media company.
The lawsuit said that by not submitting the required files within that time frame, Mr Musk saved money by buying Twitter shares at a cheaper rate. Investors who sold shares before disclosing were denied the opportunity to benefit from price gains.
Since Mr. Musk took over his senior financial position at Twitter, Wall Street and securities lawyers have speculated that the SEC could look into whether the billionaire violated any securities laws by not immediately disclosing his stake.
If the Securities and Exchange Commission were to investigate the late disclosure, it would likely consider whether Mr. Musk had the intent to breach the 5 percent filing rule or if it was an unintentional or oversight error.
The Securities and Exchange Commission declined to comment. A lawyer for Mr. Musk could not immediately be reached for comment.
Dennis Keeler of Better Markets, a watchdog on regulatory and corporate transparency, said regulators are obligated to consider the disclosure issue to send a message that all investors are treated the same.
“The rule of law collapses if billionaires play by a different set of rules,” he said.
In February, the Securities and Exchange Commission (SEC) proposed reducing the time frame within which investors must publicly disclose their 5 percent stake in a company from the current 10 days to five.
Robert Jackson Jr., a former commissioner with the Securities and Exchange Commission and now a professor at New York University School of Law, said the apparent delay in disclosure by Mr. Musk could be relevant in relation to the Williams Act – a five-decade-old law that set the ground rules for takeover attempts that considered undesirable or hostile.
said Mr. Jackson, co-director of New York University’s Institute for Corporate Governance and Finance. “If this wasn’t an issue that Williams Act feared, it’s hard to know what it would be.”
Mr. Musk’s takeover bid for Twitter comes just weeks after he launched an attempt to end a four-year settlement with the Securities and Exchange Commission that required reviewing his Twitter posts for potential market-moving information by officials at Tesla, the electric car company. he runs. The settlement with the Securities and Exchange Commission resulted from a Twitter post made by Mr. Musk about having financing lined up to take Tesla private when in reality he did not have the financing on hand.
Since then, Mr. Musk has been frustrated about the settlement and the need to review his Twitter posts. In a lawsuit, Mr Musk’s lawyer said the ongoing terms of the settlement amounted to an “unconstitutional limitation on Mr. Musk’s speech”.
Efrat Livni Contribute to the preparation of reports.