The case says Musk took too long to reveal his 9% share on Twitter

Elon Musk’s unusual entanglement with Twitter – which he now wants to buy – has drawn attention not only to Silicon Valley and the social media world, but also to some securities lawyers.

Even before Mr Musk announced on Thursday morning that he had offered to buy Twitter for about $ 43 billion, his accumulation last month of a large stake in social media company caught the eye of a law firm that is suing the billionaire.

On Tuesday, Block & Leviton filed a federal lawsuit against Mr. Musk on behalf of several Twitter shareholders who they said may have suffered losses as Tesla’s CEO built more than a 9 percent stake in Twitter. The lawsuit seeks collective redress and argues that Twitter investors who sold shares late last month may have lost potential profits because Mr Musk did not immediately disclose his large share of ownership.

The civil complaint notes that Mr. Musk revealed that he had amassed a 9% stake in Twitter – making him the company’s largest shareholder at the time – on April 4, although he began building his stake much more. early. When Mr. Musk finally revealed his stake in Twitter, the company’s stock price jumped to $ 49.97 from $ 39.31. The lawsuit alleges that Mr. Musk should have revealed in a regulatory application by March 24 that he had acquired a 5% stake in Twitter.

The Securities and Exchange Commission requires investors to publicly announce that they have taken a 5 percent stake or more in a company within 10 days of acquiring the shares – a rule designed primarily to force investment managers such as hedge funds to disclose their actions in market.

The lawsuit says that by failing to file the required filing within that deadline, Mr. Musk saved money by buying shares on Twitter at a lower price. And he deprived investors who sold shares before they were revealed of the chance to take advantage of the price gain.

Since Mr. Musk took up his big financial position on Twitter, Wall Street and securities attorneys have speculated that the SEC could check whether the billionaire has violated any securities laws by not disclosing his stake in a timely manner.

If the SEC had to investigate the delayed disclosure, it would probably have to consider whether Mr Musk intended to violate the 5 per cent submission rule or whether it was an unintentional mistake or omission.

The SEC declined to comment. Mr Musk’s lawyer was not immediately available for comment.

Dennis Keleher of Better Markets, the corporate and regulatory transparency supervisor, said regulators should look into the issue of disclosure to send a message that all investors are treated equally.

“The rule of law falls apart if billionaires play by a different set of rules,” he said.

In February, the SEC proposed halving the period by which investors must make public that they have taken a 5% stake in a company’s capital from the current 10 days to five.

Robert Jackson Jr., a former SEC commissioner and now a professor at New York University School of Law, said the apparent delay in disclosing information from Mr Musk could be relevant to the Williams Act, a five-decade law , which sets out basic rules for swallowing attempts that are considered unsolicited or hostile.

“Williams’ law was designed to protect investors in this situation – when an acquirer secretly buys shares, which he then uses as a support to launch an offer for the entire company,” said Mr Jackson, co-director of the Institute for Corporate Governance. in New York. and finance. “If this isn’t a case that raises concerns about Williams’ law, it’s hard to know what it would be.”

Mr Musk’s offer to take over Twitter comes just weeks after he launched an attempt to terminate a four-year deal with the SEC that required his Twitter posts to be reviewed for potential market movement information by Tesla employees. cars he runs away. The agreement with the SEC is the result of a Twitter post by Mr. Musk that he ordered funding to make Tesla private, when in fact he did not have the funding.

Mr Musk has since been disappointed with the agreement and the need to review his Twitter posts. In a court case, Mr Musk’s lawyer said the current terms of the agreement constituted “an unconstitutional restriction on Mr Musk’s speech”.

Ephrat Livni contributed to the reporting.

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