Tesla (NASDAQ: TSLA) CEO Elon Musk was in the headlines yet again after being sued by former shareholders of social networking company Twitter, Inc. (NYSE: TWTR). Allegedly, he breached federal law related to the disclosure of his stake in the company and consequently impacted investor gains.
Stakeholders claim that due to the late disclosure of Musk’s 9.2% position in Twitter, they were deprived of recent stock gains. However, following the revelation of Musk’s stake on April 4, shares of Twitter gained around 27% from April 1 close.
Accusations
Per U.S. securities law, investors are required to reveal their investments within 10 days after acquiring a 5% stake in the company. However, Musk’s stake was only disclosed after almost double that figure.
Therefore, in a proposed class action suit filed in Manhattan federal court, shareholders commented that Musk made “materially false and misleading statements and omissions” as he failed to disclose his investments in Twitter by March 24, the last regulatory date for Musk’s stake disclosure.
Furthermore, it was alleged that the intentionally delayed disclosure favored Musk by allowing him to purchase Twitter shares at lower prices, while investors ended up selling shares at “artificially deflated” levels.
Consequently, the lawsuit seeks “unspecified compensatory and punitive damages.” No immediate comments were released by Tesla.
Background
Earlier in April, Twitter disclosed that Musk had acquired a 9.2% stake in the company. Following the disclosure, Musk was expected to join Twitter’s board of directors on April 9 on the condition not to raise his stake to more than 14.9% before 2024. However, Chief Executive Parag Agrawal tweeted on Sunday night that Musk has decided not to join the Twitter board.
Wall Street’s Take
Recently, Wedbush analyst Daniel Ives maintained a Buy rating and a price target of $1,400 (41.85% upside potential) on Tesla.
The rest of the Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 15 Buys, five Holds, and six Sells. The average Tesla price target of $1,005.64 implies 1.89% upside potential. Shares have gained 29.47% over the past year.
Bloggers Weigh In
Bloggers seem enthused about the company’s future prospects. TipRanks data shows that financial blogger opinions are 77% Bullish on TSLA, compared to a sector average of 68%.
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