Here’s a rundown of Musk’s legal woes since he first disclosed his 9.2% stake in Twitter in early April.
Shareholders due over delayed disclosure
Twitter shareholders
sued Musk in April itself, claiming that they missed out on a potentially stock rally because he took too long to reveal a 9.2% stake in the company.
Musk made “materially false and misleading statements and omissions” by failing to disclose his investment in Twitter by March 24, as required by federal law, according to a proposed class action filed in federal court in Manhattan.
After Musk declared his position in Twitter, which investors saw as a vote of confidence from the world’s richest person, the company’s shares jumped 27% to $49.97 from $39.31 on April 4.
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Regulatory scrutiny: FTC and SEC step in
Musk’s legal troubles over Twitter extend beyond lawsuits. The Federal Trade Commission (FTC) is looking into whether Musk complied with an antitrust reporting obligation when he announced his stake in the company in early April.
The FTC will set a deadline in the next month to decide whether to conduct an in-depth review of the transaction,
Bloomberg reported on May 5.
Under US merger law, Musk is required to notify the FTC and the Justice Department of the transaction and wait at least 30 days before closing to allow an investigation into potential antitrust concerns. The FTC can ask for additional information, issuing what’s known as a second request, which would further delay closing.
According to the
Wall Street Journal, the Securities and Exchange Commission (SEC) also initiated an investigation against Musk after he delayed registering his investment in Twitter, a move that may have saved him millions of dollars. Musk purchased a 5% investment in Twitter on March 14, but did not register it with the SEC until April 4, more than a week beyond the regulatory agency’s 10-day disclosure period.
Musk likely saved about $143 million by delaying his report but it is unclear whether the SEC will pursue civil charges against him, according to University of Pennsylvania accounting professor Daniel Taylor.
Companies that fail to register substantial stock transactions or other acquisitions can be penalised up to $43,792 per day under US law if they do not follow the requirements.
Pension fund sues to block the deal
A Florida pension fund
sued Musk and Twitter in early May, attempting to prevent Musk from completing his planned buyout of the social media company.
The Orlando Police Pension Fund filed a complaint in Delaware Chancery Court alleging that under Delaware law, Musk cannot complete the buyout until at least 2025 unless two-thirds of shares not “owned” by him approve. Musk became an “interested investor” after purchasing more than 9% in Twitter, according to the lawsuit, necessitating the delay.
Twitter and its board, including chief executive Parag Agrawal, are also defendants.
The lawsuit seeks to postpone the acquisition until at least 2025, declare Twitter directors to have broken their fiduciary duties, and reclaim legal expenses and costs.
Musk accused of ‘market manipulation’
The latest lawsuit Musk faces over his Twitter deal accuses him of stock manipulation. On May 27, reports said Musk is
being sued for allegedly driving down the price of Twitter’s stock, to either get out of his $44 billion buyout attempt or negotiate a lower price.
According to the lawsuit, the Tesla CEO tweeted and made statements in an attempt to cast doubt on the deal, which has roiled social media for weeks. The lawsuit seeks class-action status and asks a federal court in San Francisco to uphold the deal’s legality and give stockholders any damages permitted by law.
Musk said last week that his attempt to buy Twitter
won’t go through unless he has confirmation of the platform’s spam numbers, adding to the uncertainty around the deal.
The suit stated that Musk’s tweet stating the plan to buy Twitter was ”
temporarily on hold” disregarded the reality that nothing in the purchase contract allows for this.
According to the lawsuit, filed by William Heresniak of Virginia, Musk negotiated his Twitter takeover in late April without performing the due diligence required in such megadeals.
