The plaintiffs, spearheaded by the Oklahoma Firefighters Pension and Retirement System, alleged that Musk failed to meet the SEC deadline of March 24, 2022, to disclose his acquisition of 5% of Twitter shares. Instead, he delayed for an additional 11 days before announcing his 9.2% ownership in a filing with the SEC.
A U.S. court on Friday rejected billionaire Elon Musk’s motion to dismiss a lawsuit claiming he misled former Twitter shareholders by not disclosing his initial investment in the social media platform, now referred to as X.
U.S. District Judge Andrew Carter, based in Manhattan, determined that the shareholders sufficiently alleged that Musk, who currently serves as a senior adviser to President Donald Trump, intended to commit fraud through an improper regulatory filing, misleading tweets regarding Twitter’s future, and a strategy to covertly increase his ownership in the company.
While Carter dismissed several other claims within the proposed class action, he did not make a ruling on the overall merits of the case. Additionally, the Securities and Exchange Commission is pursuing legal action against Musk for failing to disclose information in a timely manner.
Musk’s legal team did not provide an immediate response to requests for comments.
The plaintiffs, led by the Oklahoma Firefighters Pension and Retirement System, contended that Musk overlooked an SEC deadline of March 24, 2022, to disclose his acquisition of 5% of Twitter shares, delaying the announcement of his 9.2% stake for an additional 11 days in an SEC filing.
They argued that this delay resulted in Musk saving over $200 million and caused them to sell their Twitter shares at artificially depressed prices. Musk ultimately purchased the entirety of Twitter for $44 billion in October 2022.
In a detailed 43-page ruling, Carter noted that Musk’s announcement of his 9.2% stake could be interpreted as misleading, as it implied he had made a “passive” investment and did not intend to acquire the company.
Carter also indicated that shareholders could pursue legal action based on two tweets from March 26, 2022, in which Musk mentioned he was “giving serious thought” to creating a competitor to Twitter and humorously responded to a suggestion of buying Twitter and changing its bird logo to a doge with “Ha ha that would [be] sick.”
Musk’s attorneys argued that these tweets negated any implication of fraudulent intent, as they could attract unwanted scrutiny regarding his involvement with Twitter. However, Carter found the plaintiffs’ position to be “at least as compelling.”
Following Musk’s disclosure of his 9.2% stake, Twitter shares experienced a 27% increase on April 4, 2022.
The matter is identified as Oklahoma Firefighters Pension and Retirement System v. Musk et al, in the U.S. District Court for the Southern District of New York, case number 22-03026.
