By Jonathan Stempel NEW YORK (Reuters) -A U.S. judge on Friday rejected billionaire Elon Musk’s bid to dismiss a lawsuit claiming he defrauded former Twitter shareholders by waiting too long to disclose his initial investment in the social media company, now known as X. U.S. District Judge Andrew Carter in Manhattan said the shareholders adequately […]
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Elon Musk must face fraud lawsuit over disclosure of Twitter stake
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By Jonathan Stempel
NEW YORK (Reuters) -A U.S. judge on Friday rejected billionaire Elon Musk’s bid to dismiss a lawsuit claiming he defrauded former Twitter shareholders by waiting too long to disclose his initial investment in the social media company, now known as X.
U.S. District Judge Andrew Carter in Manhattan said the shareholders adequately pleaded that Musk, now a top adviser to President Donald Trump, intended to commit fraud through an improper regulatory filing, misleading tweets about Twitter’s future, and a strategy to “silently” build his Twitter stake.
Carter dismissed some other claims in the proposed class action. He did not rule on the case’s merits. The U.S. Securities and Exchange Commission is also suing Musk over the late disclosure.
Lawyers for Musk did not immediately respond to requests for comment.
Plaintiffs led by the Oklahoma Firefighters Pension and Retirement System said Musk ignored an SEC deadline of March 24, 2022 to reveal he had bought 5% of Twitter shares, and waited 11 more days before revealing his 9.2% stake in an SEC filing.
The plaintiffs said this saved Musk more than $200 million, and harmed them because they sold Twitter shares at artificially low prices. Musk bought all of Twitter for $44 billion in October 2022.
In a 43-page decision, Carter said Musk’s disclosure of the 9.2% stake could be seen as misleading because it suggested he made a “passive” investment and did not plan to buy the company.
Carter said shareholders could also sue over two tweets on March 26, 2022, where Musk said he was “giving serious thought” to building a Twitter rival, and responded to a suggestion he buy Twitter and change its bird logo to a doge by saying “Ha ha that would [be] sickkk.”
Musk’s lawyers said the tweets undermined any suggestion of fraudulent intent because they could bring unwanted attention to him concerning Twitter, but Carter found the plaintiffs’ argument “at least as compelling.”
Twitter shares rose 27% on April 4, 2022 after Musk revealed his 9.2% stake.
The case is Oklahoma Firefighters Pension and Retirement System v. Musk et al, U.S. District Court, Southern District of New York, No. 22-03026.
(Reporting by Jonathan Stempel in New York; Editing by Leslie Adler and Diane Craft)