The Elon Musk Twitter Drama Just Escalated With A Lawsuit

Elon Musk and his Twitter moves have kept newsrooms buzzing for the past few days, and the situation continues to deliver new twists at a brisk pace. The Tesla chief has now been sued by shareholders for violating securities laws because Musk did not disclose his stock purchase in time. The lawsuit, which has been filed before the United States District Court for the Southern District of New York and currently awaits a class-action nod, claims that Musk's non-disclosure led many investors to incur loss who sold their shares between March 24 and April 1. To recall, Twitter's stock price jumped by 27% when it was announced that Musk has purchased a 9.2% stake in the social media company. In fact, ARK Invest would currently have a $700 million stake in Twitter at this point versus the current $62 million, if the company hadn't been offloading Twitter stock since the beginning of 2022.

Titled Rasella vs Elon Musk after plaintiff Marc Rasella, the lawsuit cites an SEC rule governing Schedule 13 declaration of stock purchase that says an investor has to declare their investment within ten days if they purchase more than a 5% share in a company. As per the lawsuit, Musk started buying Twitter stock in January and by March 14, his share in the company had already gone past the 5% percent margin. Musk only filed the Schedule 13 declaration before the SEC on April 4, when his stake in Twitter reached the 9.1% mark.

Securities litigation firm Block & Leviton is inviting Twitter shareholders who sold their stock between March 24 and April 1 to share details of their transactions and strengthen the demand for a class-action lawsuit. However, the fashion in which Musk filed his declaration before the SEC is also a topic of hot debate. Musk initially went with a Schedule 13G filing, the right way for passive stock acquisition, which also means Musk can't try to wrest control of the company into his hands. Musk subsequently submitted a revised Schedule 13D filing, which classified him as an active investor. More importantly, the form mentions that Musk won't be able to buy more than a 15% stake in the company.

But Musk's situation around a Twitter board member seat has also witnessed some upheaval. When Twitter CEO Parag Agarwal initially announced Musk's stake in Twitter, it was widely reported that Musk's seat on the board could catalyze some interesting changes at the company. But a few days later, Agrawal shared that Musk has decided to not become a board member, despite being the biggest shareholder as of April 11. It is worth noting here that Musk isn't the biggest shareholder in Twitter anymore as that honor goes to Vanguard, which now owns a 10.29% stake in the company according to an SEC filing. Nonetheless, Musk will remain an influential figure at Twitter, with or without a board seat.