Elon Musk disregarded multiple warnings about U.S. securities disclosure laws related to his growing stake in Twitter in 2022, according to a lawsuit. A Morgan Stanley (MS.N) executive, who assisted Musk in secretly accumulating shares in the social media giant, revealed this information.
The complaint claims that both Musk and his adviser Jared Birchall knew about the rule requiring disclosure of stakes exceeding 5% in Twitter. This is based on their testimonies during an SEC investigation.
A Twitter investor updated the lawsuit on Tuesday in Manhattan federal court, accusing Musk of defrauding investors by delaying disclosure of his Twitter holdings, which allowed him to buy shares at lower prices. The Oklahoma firefighters pension fund claims that Musk saved over $200 million through his secret purchases, negatively impacting other investors.
The lawsuit alleges that Musk and Birchall teamed up with a Morgan Stanley managing director to develop a covert trading strategy to conceal Musk’s acquisition of Twitter stock, permitting him to buy shares at “artificially depressed prices.”
Neither Musk nor Birchall provided comments when reached out. Morgan Stanley stated, “Morgan Stanley is not a defendant in this lawsuit.”
According to the lawsuit, the Morgan Stanley executive repeatedly urged Birchall to consult legal counsel about the 5% disclosure requirements. Birchall claimed that legal consultation had occurred, though it only happened after Musk had acquired over a 9% stake on April 1, 2022.
Musk completed the purchase of Twitter for $44 billion in October 2022 and subsequently renamed the company X.
“They were aware of the requirement but chose not to disclose because it would increase the cost and public attention on Musk’s purchases,” the lawsuit reads. Musk’s legal team has argued that any failure to disclose was “inadvertent,” pointing to his busy schedule.
This incident is part of a long-standing conflict between Musk and the SEC, which began in 2018 with his tweet about having “funding secured” to take Tesla (TSLA.O) private.