Elon Musk Faces Fraud Lawsuit for Late Disclosure of Twitter Stake, According to Reuters

By Jonathan Stempel

NEW YORK – A U.S. judge has ordered Elon Musk to respond to most allegations in a lawsuit claiming he defrauded former Twitter shareholders by delaying the disclosure of his investment in the company, which he later purchased and rebranded as X.

In a ruling released on Monday, U.S. District Judge Andrew Carter stated that shareholders in a proposed class action could attempt to demonstrate that Musk intentionally deceived them by failing to disclose that he acquired 5% of Twitter’s shares until 11 days after a U.S. Securities and Exchange Commission (SEC) deadline.

The judge, based in Manhattan, dismissed an insider trading allegation against Musk, who is recognized as the world’s richest individual.

Musk’s legal team did not provide immediate comments on the ruling.

Shareholders, led by a pension fund for Oklahoma firefighters, allege that Musk gained over $200 million by increasing his stake in Twitter and engaging in private discussions with executives about his intentions, before eventually disclosing a 9.2% stake in April 2022. They contend that he concealed his actions, leading them to sell their Twitter shares at artificially suppressed prices.

Defense attorneys for Musk maintained that he is "one of the busiest people on the planet" and argued that any failure to disclose was "inadvertent."

However, Judge Carter indicated that he could not conclude that Musk was "too busy" to adhere to SEC regulations if he was able to buy shares, meet with company executives, and post about Twitter online. The judge also noted that Musk had previously acknowledged understanding the 5% disclosure rule, having testified about it under oath, and had disclosed his stakes in Tesla and SolarCity properly on at least 20 occasions.

Katie Sinderson, an attorney representing the plaintiffs, opted not to comment further.

Musk completed his acquisition of Twitter for $44 billion last October. Under SEC regulations, investors have a 10-day window to disclose when they acquire 5% of a company’s shares.

Following Musk’s announcement of his 9.2% stake on April 4, 2022, Twitter’s stock surged by 27%, rising from $39.31 to $49.97. His acquisition valued Twitter at $54.20 per share.

The case is titled Oklahoma Firefighters Pension and Retirement System v. Musk et al, filed in the U.S. District Court for the Southern District of New York.