Elon Musk is facing a federal class-action lawsuit from Twitter shareholders that alleges the owners missed out on potential gains because his purchase of shares was not adequately disclosed. Musk, the tech mogul who serves as the CEO of both Tesla and SpaceX, has been consumed by a flurry of media attention following his surprise buy of Twitter shares. Although the company has maintained that the billionaire will not have the power to impact Twitter’s day-to-day operations, Musk has been consistent in his displeasure with its free speech and moderation policies. After briefly considering a social media platform launch of his own, Musk bought a significant stake in Twitter, which is now under scrutiny.

On Monday, April 4, 2022, Musk revealed through a filing with the U.S. Securities and Exchange Commission (SEC) that he had purchased 73,486,938 shares of Twitter, which is equivalent to a 9.2 percent stake in the company. The ownership is considered a passive stake, but it is possible that Musk’s holdings could become an active stake in the future. His sudden purchase of shares — which now puts Musk as the largest Twitter shareholder — raised questions about his intentions for his stake and thus the company. Twitter CEO Parag Agrawal initially announced that Musk would be granted a seat on Twitter’s Board of Directors; however, Musk turned down the offer to join the board on Saturday, April 9.

Related: Elon Musk’s Next Target Is The Twitter Verified Check

The reveal of Musk’s holdings on April 4 sparked a class-action lawsuit about the legality of his disclosure of the Twitter purchase. According to the filing, he started to purchase shares of Twitter as early as Jan. 2022. Musk had amassed a five-percent stake in the company by March 14, 2022. The public was not aware of these acquisitions, and the Tesla CEO continued to add shares to his portfolio in the subsequent days after he passed the five percent threshold. Federal law and regulations — including the Exchange Act and Securities and Exchange Commission (SEC) rules — require shareholders to fill out a Schedule 13 form within ten days of surpassing a five-percent stake in the company. Since Musk passed the five-percent threshold back on March 14, 2022, he was required to file a Schedule 13 by March 24, 2022.

Shareholders Claim Damages Due To Musk’s Disclosure

Elon Musk Twitter Account Twitter Logo

Despite the previously mentioned SEC requirements, Musk did not disclose his purchase of Twitter shares until April 4, which is ten days past the deadline to report a five-percent ownership stake in a company. During that time, the suit alleges Musk continued to add stock — from the five percent on March 14 to an eventual 9.2 percent on April 4 — less expensively than if he had correctly reported his stake. By contrast, the plaintiffs claim that shareholders who sold their stock between March 24 and April 4 missed out on the value increase resulting from Musk’s purchase. When Musk disclosed his Twitter stock purchases, the share prices rose approximately 27 percent — from $39.31 per share on April 1 to $49.97 on April 4 — according to the lawsuit.

Class plaintiff Marc Bain Rasella believes that Musk’s late disclosure affected hundreds of Twitter shareholders. Additionally, it is claimed that millions of Twitter shares were traded between March 24 and April 4, at which time the stock was severely undervalued. If the case moves forward, it hinges upon whether Musk violated SEC regulations and if his statements were false or misleading.