Twitter Shareholder Sues Elon Musk Over Share Acquisition

Shareholder alleges he sold shares between when Musk was required to disclose his Twitter ownership and before the actual disclosure, missing out on the resulting share price increase.

Corinne Reichert Senior Editor

Corinne Reichert (she/her) grew up in Sydney, Australia and moved to California in 2019. She holds degrees in law and communications, and currently writes news, analysis and features for CNET across the topics of electric vehicles, broadband networks, mobile devices, big tech, artificial intelligence, home technology and entertainment. In her spare time, she watches soccer games and F1 races, and goes to Disneyland as often as possible.

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Corinne Reichert

April 12, 2022 3:47 p.m. PT

2 min read

Sarah Tew/CNET

A Twitter shareholder on Tuesday filed a proposed class action lawsuit against Elon Musk, alleging the Tesla and SpaceX CEO violated securities regulations by not revealing he'd taken a stake in the social network in a timely manner.

Musk acquired more than a 5% stake in Twitter by March 14, which requires him to file a Schedule 13 form with the US Securities and Exchange Commission within 10 days, according to Block & Leviton, which filed the complaint in the District Court for the Southern District of New York.

However, Musk didn't file a Schedule 13 until April 4, the complaint alleges. After disclosing his ownership stake, Twitter's shared rose by more than 27%, from $39.31 per share on April 1 to $49.97 per share on April 4. Musk ended up acquiring a 9.2% stake in Twitter.

"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," the complaint alleges. "By failing to disclose his ownership stake via Schedule 13, Musk was able to acquire shares of Twitter less expensively during the class period."

The plaintiff in the lawsuit sold Twitter shares during the class period and is seeking compensation and punitive damages, according to the complaint.

Twitter declined to comment. Musk couldn't be reached for comment.

Musk turned down the opportunity to serve on Twitter's board of directors on April 9, the day his appointment was intended to go into effect. The decision followed Musk's disclosure on April 4 that he had acquired a 9.2% stake in Twitter, which makes him the company's largest shareholder.