Elon Musk’s investment in Twitter is now the focus of a lawsuit.
Musk’s move has drawn the ire of shareholders alleging that he illegally delayed disclosing his stake in the social media company, so he could buy more shares at lower prices.
The complaint in New York federal court accuses Musk of violating a regulatory deadline by which time he had to reveal that he had accumulated a stake of at least 5%.
According to the complaint, Musk didn’t disclose his position in Twitter until he almost doubled his stake to more than 9%.
The lawsuit alleges that by March 14, Musk’s stake in Twitter had reached a 5% threshold that required him to publicly disclose his holdings under U.S. securities law by March 24. He didn’t make the disclosure until April 4.
That strategy hurt less wealthy investors who sold shares in the San Francisco company in the nearly two weeks before Musk acknowledged holding a major stake, the suit alleges.
.According to regulatory filings, Musk bought a little more than 620,000 shares at $36.83 apiece on Jan. 31 and then continued to accumulate more shares on nearly every single trading day through April 1.
Musk held 73.1 million Twitter shares as of Monday. That represents a 9.1% stake in Twitter.
That revelation caused Twitter’s stock to soar 27% from its April 1 close to nearly $50 by the end of April 4’s trading, depriving investors who sold shares before Musk’s improperly delayed disclosure the chance to realize significant gains, according to the lawsuit filed on behalf of an investor named Marc Bain Rasella.
The lawsuit is seeking to be certified as a class action representing Twitter shareholders who sold shares between March 24 and April 4, a process that could take a year or more.
An SEC spokesperson declined to comment to the Associated Press.
Musk didn’t immediately respond to a request for comment posted on Twitter, where he often shares his opinion and thoughts. Alex Spiro, a New York lawyer representing Musk in his ongoing dispute with the SEC, also didn’t immediately respond to a query from The Associated Press.
There has been a whirlwind of headlines since Musk disclosed the purchase. He suggested changes to the Twitter business model, was offered a position on the social media company’s board, which he turned down, and he conducted a poll asking people on Twitter about whether they would be in favor of an edit button.
The Associated Press contributed to this report.