US judge orders Elon Musk to face most of lawsuit alleging he defrauded shareholders with late Twitter shareholding disclosure
Elon Musk continues to face significant legal challenges on a number of fronts, with one lawsuit from 2022 making headlines this week.
Reuters reported that Elon Musk was ordered by a US judge to face most of a lawsuit claiming he had defrauded former Twitter shareholders last year by waiting too long to disclose he had invested in Twitter, now known as X.
Musk had been sued in April 2022 for alleged securities fraud in Manhattan federal court after he did not disclose he had acquired a 5 percent stake in Twitter in the required timeframe, as per US trading rules, on 24 March.
Indeed, Musk only went public with an SEC filing on 4 April when he had doubled his stake to 9.2 percent.
Another lawsuit was also filed against Musk in May 2022, when disgruntled shareholders alleged Musk had carried out stock market manipulation.
That lawsuit also alleged that Musk had snapped up shares in Twitter while he knew insider information about the company based on private conversations with board members and executives, including former CEO Jack Dorsey, and Silver Lake co-CEO Egon Durban, a Twitter board member whose firm had previously invested in Musk’s SolarCity before Tesla acquired it.
Now in a decision made public on Monday, US District Judge Andrew Carter reportedly said shareholders in the proposed class action could try to prove that Musk intended to defraud them by waiting 11 days past a US Securities and Exchange Commission deadline to reveal he had bought 5 percent of Twitter’s shares.
The judge in Manhattan however also dismissed an insider trading claim against Musk, Reuters reported.
Lawyers for Musk did not immediately respond on Tuesday to requests for comment, Reuters reported.
Alleged stock manipulation
Twitter shareholders, led by an Oklahoma firefighters pension fund, allege Musk saved more than $200 million by adding to his Twitter stake, and quietly talking with its executives about his plans, before finally disclosing a 9.2 percent stake in April 2022.
The shareholders also allege they sold Twitter shares at artificially low prices because Musk hid what he was doing.
Musk’s lawyers argued that their client was “one of the busiest people on the planet,” and that any disclosure failure was “inadvertent.”
Judge Carter said he could not infer that Musk was “too busy” to comply with SEC rules if he could find time to buy Twitter shares, meet with company executives, and post online about Twitter.
He also found evidence that Musk understood the 5 percent disclosure rule, including that he had testified about it under oath, and had properly disclosed stakes in his electric car maker Tesla and the former SolarCity at least 20 times.
Under the SEC rule, investors have 10 days to disclose when they have acquired 5 percent of a company.
Twitter shares had risen 27 percent on 4 April 2022, to $49.97 from $39.31, after Musk had revealed his 9.2 percent stake.