A U.S. judge has 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. U.S. District Judge Andrew Carter in Manhattan ruled that shareholders sufficiently claimed Musk intended to commit fraud through improper regulatory filings, misleading tweets about Twitter's future, and a strategy to quietly increase his stake in the company.
While Carter dismissed some claims in the class action, he did not address the merits of the case. The U.S. Securities and Exchange Commission is also investigating Musk for the late disclosure.
The plaintiffs, led by the Oklahoma Firefighters Pension and Retirement System, argued that Musk ignored an SEC deadline of March 24, 2022, to disclose that he had acquired 5% of Twitter shares, waiting an additional 11 days to reveal his 9.2% stake in an SEC filing. They contended that this delay cost them over $200 million, as they sold Twitter shares at artificially low prices. Musk later purchased the entire company for $44 billion in October 2022.
In his 43-page decision, Carter noted that Musk's disclosure of the 9.2% stake could be perceived as misleading, suggesting a "passive" investment with no intention to take over the company. Shareholders could also pursue claims based on two tweets from March 26, 2022, where Musk indicated he was "giving serious thought" to creating a Twitter competitor and humorously responded to a suggestion to buy Twitter and change its logo to a doge.
Musk's lawyers argued that these tweets diminished any implication of fraudulent intent, as they could attract unwanted attention to his activities regarding Twitter; however, Carter found the plaintiffs' position "at least as compelling."
Twitter shares experienced a 27% increase on April 4, 2022, following Musk's announcement of his 9.2% stake. The case is registered as Oklahoma Firefighters Pension and Retirement System v. Musk et al, U.S. District Court, Southern District of New York, No. 22-03026.