Elon Musk is being sued by a group of Twitter investors for allegedly not disclosing his stake in the social media company, after he said on April 4 that he owned a 9.2% stake in the platform, according to multiple reports.
The lawsuit was filed on Tuesday in New York federal court and says that Musk violated federal trade laws by not letting the Securities and Exchange Commission (SEC) know about owning more than 5% of Twitter's stock, according to CNBC.
Investors have 10 days to inform the SEC when they have more than a 5% stake in a company, and Musk reportedly had done that with Twitter by March 14 after he publicly started to buy Twitter stock in January, giving him until March 24 to make it public.
He bought more than 620,000 shares at $36.83 apiece on Jan. 31, according to his regulatory filings, per the Associated Press. Musk then continued to purchase Twitter shares every day up until April 1.
By waiting 11 days to make his much larger stake in Twitter public, it earned him up to $156 million, according to legal and securities experts, per The Washington Post.
After making his stake public, Twitter's stock went up by 27% on April 4, jumping to $49.97 per share. It now sits at around $45 per share as of April 13.
Investors believe that they lost out on potential gains because of Musk's delay in disclosing how much Twitter stock he owns.
"I really don’t know what’s going through his mind. Was he ignorant or knowledgeable that he was violating securities law?" David Kass, a finance professor at University of Maryland’s business school, told The Washington Post.
Alon Kapen, a corporate transaction lawyer with Farrell Fritz, explained the situation in a statement to CNBC, and detailed what Musk did by waiting to make his purchases public.
"What seems crystal clear is that Elon Musk missed the applicable 10-day filing deadline under Sections 13(d) and 13(g) of the Securities Act of 1933 to report 5% ownership in a public company," Kapen said in the statement.
"That gave him an extra 10 days in which to buy additional shares (he increased his ownership during that time by an extra 4.1%) before the per share price spike that occurred when he finally announced his holdings on April 4," Kapen said.
Musk has not yet responded to requests for comments, but has continued to tweet on the social media platform as he usually does.
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