Twitter stock is at the center of a lawsuit against Elon Musk, alleging illegal trading practices.
Between the end of January and the beginning of April, billionaire Elon Musk bought 73.1 million shares of Twitter stock, amounting to a 9.1 percent stake in the social medial company. On Monday, April 4th, he was invited to join Twitter’s board of directors due to his purchase. He spent several days tweeting a series of unlikely changes for the company. Removing all advertisements (Twitter’s only source of revenue) and turning its San Francisco headquarters into a 500,000 square foot homeless shelter were two of the more radical ‘suggestions.’ And then on Saturday, Musk turned down the board role offer.
Why? No one knows. Twitter’s current CEO, Parag Agrawal, merely said that Musk’s decision was “for the best,” though he hinted at the opposite in his Monday statement. As a shareholder, Musk has no obligation to vote in the best interests of the company, but if he’d become a board member, he’d have been legally bound to do so.
The lawsuit alleges that Musk violated a regulatory deadline that applies to people buying large stakes in any company. Federal law requires anyone who accumulates a stake of 5 percent in any company to disclose the fact immediately. Musk delayed disclosing until he had reached nearly 9 percent.
The lawsuit, a class action suit filed in New York federal court on behalf of other Twitter investors, says that U.S. securities law dictates Musk should have disclosed before March 24th. He didn’t comply until April 4th. The delay kept Twitter stock prices lower than they should have been, hurting smaller investors.
The lawsuit is a private solution of the matter, with investors seeking damages from Musk for the delay’s effect on his own trading. For official sanctions, the Securities and Exchange Commission would have to file their own suit.
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