In a proposed class action filed in Manhattan federal court,
the shareholders said Musk, the chief executive of electric car company Tesla
Inc, made "materially false and misleading statements and omissions"
by failing to reveal he had invested in Twitter by March 24 as required under
federal law.
Twitter shares rose 27 percent on April 4, to $49.97 from
$39.31, after Musk disclosed his stake, which investors viewed as a vote of
confidence from the world's richest person in San Francisco-based Twitter.
Former shareholders led by Marc Rasella said the delayed
disclosure let Musk buy more Twitter shares at lower prices, while defrauding
them into selling at "artificially deflated" prices.
The lawsuit seeks unspecified compensatory and punitive
damages.
A lawyer for Musk had no immediate comment. Tesla is not a
defendant.
US securities law requires investors to disclose within 10
days when they have acquired 5 percent of a company, which in Musk's case would
have been March 24.
Twitter announced on April 5 that Musk would join its board
of directors, but this week said he had decided not to.
By not joining the board, Musk, a prolific Twitter user, can
keep buying shares without being bound by his agreement with the company to
limit his stake to 14.9 percent.
Some analysts have suggested Musk could push Twitter to make
changes, or even pursue an unsolicited bid for the company.
Rasella said he sold 35 Twitter shares for $1,373, or an
average price of $39.23, between March 25 and 29. Musk is worth $265.1 billion,
according to Forbes magazine.
The case is Rasella v Musk, US District Court, Southern
District of New York, No. 22-03026. © Reuters
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