A U.S. judge on Friday rejected Elon Musk’s attempt to dismiss a lawsuit alleging he defrauded former Twitter shareholders by delaying the disclosure of his initial investment in the company, now known as X.
The decision could have significant financial and legal implications for the billionaire entrepreneur, as well as for regulatory scrutiny of major corporate transactions.
U.S. District Judge Andrew Carter in Manhattan ruled that shareholders had sufficiently argued that Musk intended to commit fraud through an improper regulatory filing, misleading public statements, and a strategy to secretly amass his stake in Twitter. However, Carter dismissed some other claims in the proposed class-action lawsuit and did not rule on the overall merits of the case.
The lawsuit, led by the Oklahoma Firefighters Pension and Retirement System, claims Musk violated a U.S. Securities and Exchange Commission (SEC) deadline requiring him to disclose his 5% stake in Twitter by March 24, 2022. Instead, he waited an additional 11 days, revealing his 9.2% stake only on April 4, 2022.
This delay allegedly allowed Musk to save over $200 million while causing financial harm to shareholders who sold their shares at artificially low prices.
Twitter’s stock surged 27% on April 4 after Musk’s disclosure, underscoring the potential impact of his delayed filing. The SEC has also launched a separate lawsuit against Musk over the late disclosure.
Judge Carter pointed out that Musk’s disclosure of the 9.2% stake could be seen as misleading, as it suggested he was making a passive investment rather than planning a full acquisition. The lawsuit also cites two of Musk’s tweets from March 26, 2022, in which he mused about creating a Twitter competitor and jokingly responded to a suggestion that he buy Twitter and change its logo to a doge.
Musk’s lawyers argued that these tweets undermined any claim of fraudulent intent since they could have drawn unwanted attention to his Twitter investment. However, Carter ruled that the shareholders’ argument was “at least as compelling.”
Musk ultimately acquired Twitter for $44 billion in October 2022.
