New York (Reuters) – A U.S. judge has ruled that Elon Musk must confront a lawsuit alleging that he defrauded former Twitter shareholders in the previous year. This alleged fraud stems from his delayed disclosure of an investment in the social media company, which he subsequently acquired and renamed X.
In a recently publicized decision on Monday, U.S. District Judge Andrew Carter allowed shareholders in a proposed class action to proceed with their claims that Elon Musk may have intentionally defrauded them by waiting 11 days beyond a U.S. Securities and Exchange Commission (SEC) deadline to disclose his acquisition of 5% of Twitter’s shares.
Judge Carter, sitting in Manhattan, dismissed an insider trading accusation against Elon Musk, who is widely recognized as the world’s wealthiest individual.
Musk’s legal representatives have yet to respond to requests for comment as of Tuesday.
Shareholders, spearheaded by an Oklahoma firefighters pension fund, alleged that Musk benefited by over $200 million through his increased stake in Twitter. They also claimed that Musk had confidential discussions with Twitter executives about his intentions, all while concealing his 9.2% ownership stake in the company until April 2022. This, they contend, led them to sell Twitter shares at artificially deflated prices due to Musk’s non-disclosure.
Musk’s defense argued that their client’s failure to disclose was inadvertent, citing his hectic schedule.
Judge Carter, however, disagreed, stating that if Musk could find time to purchase Twitter shares, engage with company executives, and post about Twitter online, he couldn’t infer that Musk was too busy to adhere to SEC regulations. The judge also found evidence that Musk was familiar with the 5% disclosure rule, citing Musk’s testimony under oath and his proper disclosure of stakes in Tesla and the former SolarCity on numerous occasions.
Katie Sinderson, an attorney representing the plaintiffs, declined to comment on the matter.
It’s worth noting that Musk acquired Twitter for $44 billion in October of the previous year. Under SEC rules, investors are required to disclose their acquisition of 5% or more of a company’s shares within 10 days.
Following Musk’s revelation of his 9.2% stake in Twitter, the company’s shares surged by 27% on April 4, 2022, rising from $39.31 to $49.97. Musk’s involvement valued Twitter at $54.20 per share.
The case is titled “Oklahoma Firefighters Pension and Retirement System v. Musk et al” and is pending in the U.S. District Court for the Southern District of New York, identified as No. 22-03026.