Musk disregarded warnings, hid Twitter stake, US lawsuit claims

By Hyunjoo Jin

SAN FRANCISCO (Reuters) – Elon Musk ignored repeated warnings about the U.S. securities disclosure obligations potentially triggered by his growing stake in Twitter in 2022, according to a Morgan Stanley executive who helped Musk secretly amass shares in the social media firm, a lawsuit says.

The lawsuit claims that Musk and his right-hand man Jared Birchall were aware of and discussed the rule that they have to disclose more than a 5% stake in Twitter, citing testimonies from the two men in an investigation by the U.S. Securities and Exchange Commission (SEC).

The amended lawsuit filed by a Twitter investor on Tuesday in a Manhattan federal court accuses Musk of defrauding investors by delaying disclosure of his Twitter stake to amass shares at lower prices. The Oklahoma firefighters pension fund said Musk saved more than $200 million by adding to his Twitter stake in secret, to the detriment of some investors.

Musk and Birchall enlisted the unidentified managing director at Morgan Stanley to develop a clandestine trading strategy to hide Musk’s Twitter stock acquisition and allow him to buy shares at “artificially depressed prices,” the lawsuit said.

Neither Musk nor Birchall were immediately available for comment. Morgan Stanley in a statement said, “Morgan Stanley is not a defendant in this lawsuit.”

The Morgan Stanley executive repeatedly told Birchall to seek legal advice regarding the 5% disclosure requirements, the lawsuit said. Birchall told the executive that lawyers had been consulted, when that was not the case until he had amassed over a 9% stake in Twitter on April 1, 2022, according to the lawsuit.

Musk eventually bought Twitter for $44 billion in October 2022 and changed the company’s name to X.

“They knew the answer, they had to disclose but did not want to, in part because it would make Musk’s purchases drastically more expensive and public, so Birchall and Musk disregarded repeated warnings,” from the Morgan Stanley executive “about the need to get legal advice,” the lawsuit said.

Musk’s lawyers previously argued that their client was “one of the busiest people on the planet,” and that any disclosure failure was “inadvertent.”

The violation “is the latest episode in Musk’s history of disregard for the federal securities laws and contempt for the SEC and its rules and regulations,” the lawsuit said.

Musk and the top U.S. markets regulator have been in a years-long feud, dating back to 2018, when he tweeted that he had “funding secured” to take electric carmaker Tesla (NASDAQ:) private.