Elon Musk faces lawsuit for misleading Twitter shareholders over investment strategy that ‘saved him over $200 mn’

A US judge on Friday has denied Elon Musk's request to dismiss a lawsuit accusing him of misleading former Twitter shareholders. It claimed Musk waited too long to reveal his initial investment in Twitter (now called X), which may have been fraudulent.

Judge Andrew Carter in Manhattan said shareholders provided enough evidence to suggest Musk intentionally misled them. They argue he used a misleading regulatory filing, 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 US Securities and Exchange Commission is also suing Musk over the late disclosure.

What did the lawsuit say?

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.

This strategy 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, Plaintiff added.

What the Judge replied?

Carter in his 43-pages reply 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 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. Lawyers for Musk did not immediately respond to requests for comment.