A federal judge has denied billionaire Elon Musk's request to dismiss a proposed class-action lawsuit alleging he defrauded Twitter investors before buying the company last year.
In a decision released Monday, U.S. District Judge Andrew Carter said Musk must face a lawsuit from shareholders who sold Twitter securities while Musk allegedly concealed his ownership stake in the company. The complaint concerns Musk's failure to disclose a 5% ownership stake in Twitter for 11 days past a U.S. Securities and Exchange Commission deadline.
The judge did however dismiss an insider trading claim made against Musk, who rebranded Twitter to X after purchasing the company in a $44 billion acquisition.
Attorneys for Musk did not immediately respond to a request for comment.
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Shareholders led by an Oklahoma firefighters pension fund said 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% stake in April 2022.
The shareholders also claimed they sold Twitter shares at artificially lower prices because Musk concealed what he was doing.
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Musk's attorneys have argued that, as CEO of Tesla and SpaceX and founder of The Boring Company and Neuralink, Musk was "one of the busiest people on the planet" and that his failure to abide by the SEC's rules was "inadvertent."
But Judge Carter said he could not infer that Musk was "too busy" to comply with SEC disclosure rules if he could buy millions of shares of stock in Twitter, tweet about the state of Twitter as a social media platform and meet with several Twitter executives and insiders."
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The judge also found evidence Musk understood the 5% disclosure requirement, including that he had testified about it under oath and had followed the rules for his other companies including Tesla.
An attorney for the plaintiffs declined to comment.
The SEC requires that investors disclose when they have acquired 5% of a company within 10 days of doing so.
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Twitter shares rose 27% April 4, 2022, to $49.97 from $39.31 after Musk revealed his 9.2% stake. Musk's takeover valued Twitter at $54.20 per share.
The plaintiffs had alleged Musk was a temporary insider at the time he bought Twitter stock because he had meetings and communications with Twitter executives. However, Carter threw out the claim, finding there was not enough evidence to suggest Musk had entered into a confidentiality agreement or that he made material decisions for Twitter which would categorize him as an insider.
Reuters contributed to this report.
