New York: A US federal judge has allowed a group of former Twitter investors to pursue a class action lawsuit against Elon Musk, accusing him of defrauding shareholders by delaying disclosure of his initial investment in the social media platform.
The ruling by Andrew Carter of the Manhattan federal court significantly raises the stakes for Musk, potentially exposing him to higher financial damages compared to individual lawsuits.
Allegations of delayed disclosure
The case centres on Musk’s acquisition of shares in Twitter in early 2022. Investors allege that he failed to meet a March 24, 2022 deadline set by the US Securities and Exchange Commission (SEC) to disclose ownership of more than 5% of the company.
According to the complaint, Musk delayed disclosure by 11 days and instead revealed on April 4, 2022 that he held a 9.2% stake.
The plaintiffs argue that this delay allowed Musk to continue purchasing shares at lower prices, saving over $200 million (approximately ₹1,660 crore).
Investors claim financial losses
The lawsuit has been led by the Oklahoma Firefighters Pension and Retirement System, representing a broader group of investors who sold their shares during the period when Musk’s stake was undisclosed.
They claim they suffered losses because the stock price remained artificially low during those 11 days due to the absence of public information about Musk’s growing ownership.
The investors also cited Musk’s tweets from March 26, 2022, where he hinted at creating a rival platform and joked about buying Twitter, arguing that these statements misled the market.
Court backs class action certification
In his ruling, Judge Carter said Musk failed to rebut the presumption that his alleged actions influenced Twitter’s share price and investor behaviour.
The court held that investors could proceed collectively as a class, even if calculating damages for each individual may be complex.
Legal experts note that class certification is a crucial step, as it allows a large group of affected investors to seek compensation in a single case, increasing potential liability for the defendant.
Musk’s defence and legal stance
Musk had opposed the class action certification, arguing that investors could not prove they relied on his alleged omissions or misrepresentations.
However, the court found that market-wide reliance could be presumed, given the impact such disclosures typically have on stock prices.
Lawyers representing Musk have not immediately commented on the ruling.
Separate legal challenges continue
This case is separate from another lawsuit in San Francisco, where a jury recently found Musk liable for attempting to influence Twitter’s takeover price by raising concerns about fake accounts and bots on the platform.
Damages in that case are yet to be determined, and Musk is expected to appeal the verdict.
Meanwhile, the SEC has also filed a separate case against Musk over the same disclosure issue. Both parties indicated in March that settlement discussions were ongoing.
Background: Musk’s Twitter acquisition
Musk eventually acquired Twitter in October 2022 for $44 billion (over ₹3.6 lakh crore) and later rebranded it as X.
The acquisition and events leading up to it have been subject to intense scrutiny from regulators, investors, and courts.
Conclusion
The latest ruling marks a significant development in the legal challenges surrounding Musk’s Twitter acquisition. With the case now proceeding as a class action, the potential financial and reputational implications for Musk could be substantial. The outcome will likely have broader implications for corporate disclosure practices and investor protections in global markets.