In a proposed class action lawsuit, former Twitter shareholders claim they lost significant wealth as Elon Musk delayed disclosing that he had acquired a 9.1% stake in Twitter.
The group, led by Marc Rasella, claims many investors sold shares at artificially low prices. According to U.S. securities law, Musk should have disclosed his stake when it reached 5% of Twitter shares on March 24.
On Monday April 4, Twitter shares rose 27% after Musk eventually disclosed his 9.1% position. The suit also alleges that Musk was able to purchase additional shares beyond his 5% stake at artificially low prices because the size of his acquisition was not yet available to the public.
According to Reuters, the suit is pursuing "unspecified compensatory and punitive damages."
This follows the news late last week that Elon Musk would not be joining the Twitter board.
On April 5, both Musk and Twitter announced that he would be taking a board seat. That changed Saturday, April 9, the day Musk was slated to begin his tenure, when he informed Twitter of his decision.
Twitter chief executive Prarag Agrawal disclosed in a Tweet on Sunday what he had told the company regarding the developing news.
The note said plainly that the board had offered Musk a seat and that he declined. “Elon Musk has decided not to join our board,” the note to the company said. “There will be distractions ahead, but our goals and priorities remain unchanged. The decisions we make and how we execute is in our hands, no one else’s. Let’s tune out the noise, and stay focused on the work and what we’re building.”
Agrawal’s note to the company also revealed that Agrawal, Musk and the board had “many discussions about Elon joining the board.”
Agrawal also wrote in the note that “We were excited to collaborate and clear about the risks. We also believed that having Elon as a fiduciary of the company where he, like all board members, has to act in the best interests of the company and all our shareholders, was the best path forward. The board offered him a seat.”
As investors reacted to the news of Musk declining the offer Monday, Twitter shares initially dropped more than 8% to less than $43 a share. Shares of Twitter were volatile throughout the day but closed up 1.7% at $47.01.