- Musk ignored repeated warnings about the U.S. securities disclosure obligations potentially triggered by his increasing stake in Twitter.
- Musk and Birchall developed a clandestine trading strategy with help from the Morgan Stanley executive to keep Musk’s Twitter stock acquisitions under wraps.
- The legal action portrays a consistent pattern of Musk’s disregard for federal securities laws and contempt for regulatory requirements.
Elon Musk is being accused of defrauding investors by delaying the disclosure of his growing stake in Twitter in 2022. The amended lawsuit, filed by a Twitter investor, alleges that Musk’s secrecy allowed him to buy shares at lower prices, saving him over $200 million to the detriment of other investors.
Ignored warnings about disclosure obligations
The lawsuit claims Musk and his right-hand man Jared Birchall were aware of the U.S. securities rules that require disclosure once a 5% stake in a company is reached. Testimonies from the two men, part of an SEC(Securities and Exchange Commission) investigation, indicated that they discussed these obligations but chose to ignore them. An unnamed managing director at Morgan Stanley, who assisted Musk in amassing his Twitter shares, repeatedly advised Birchall to seek legal counsel, advice that was reportedly disregarded.
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Secret strategy to buy shares at lower prices
According to the lawsuit, Musk and Birchall developed a clandestine trading strategy with help from the Morgan Stanley executive to keep Musk’s Twitter stock acquisitions under wraps. This secrecy allowed Musk to purchase shares at “artificially depressed prices.” Despite claims by Birchall that legal advice had been obtained, the lawsuit asserts that no such consultation occurred until Musk’s stake exceeded 9% on April 1, 2022.
Musk’s acquisition and legal defence
Musk ultimately bought Twitter for $44 billion in October 2022, renaming the company to X. The lawsuit highlights that Musk and Birchall’s intentional avoidance of disclosure rules was partly to prevent making Musk’s stock purchases significantly more expensive and subject to public scrutiny. Musk’s lawyers have argued that any failure to disclose was inadvertent, attributing it to Musk’s busy schedule.
Ongoing feud with the SEC
This latest lawsuit underscores Musk’s ongoing conflict with the SEC, which dates back to his 2018 tweet about securing funding to take Tesla private. The legal action portrays a consistent pattern of Musk’s disregard for federal securities laws and contempt for regulatory requirements.
Morgan Stanley, which is not a defendant in the lawsuit, has acknowledged the situation but emphasised its non-involvement. Musk and Birchall were not immediately available for comment.
