Musk Faces Class Action for Delayed Twitter Stake Disclosure
A federal judge on Tuesday ruled that former Twitter investors who allege that Elon Musk defrauded them by delaying the disclosure of his initial investment in the social media platform can move forward with their case as a class action. The ruling by US District Judge Andrew Carter in Manhattan reveals that the world’s wealthiest individual may face higher damages than if investors had to pursue their claims separately. Attorneys representing Musk did not promptly reply to inquiries for comment. Musk acquired Twitter for $44 billion in October 2022 and subsequently rebranded it as X.
Investors, including the Oklahoma Firefighters Pension and Retirement System, asserted that Musk disregarded a March 24, 2022 deadline established by US Securities and Exchange Commission regulations to disclose his ownership of 5 percent of Twitter shares, ultimately delaying the announcement of his 9.2 percent stake by an additional 11 days. The investors claimed that Musk saved over $200 million and deceived them by selling Twitter shares at undervalued prices during the 11-day period. Investors indicated that they depended on two tweets from March 26, 2022, in which Musk expressed he was “giving serious thought to creating a Twitter rival,” and responded with “Haha that would be sickkk” after a suggestion to buy Twitter and alter its bird logo to a doge image.
Musk argued against class certification, stating that investors failed to demonstrate reliance on his purported fraud. However, the judge stated that Musk failed to overcome the presumption that his purported misrepresentations had an impact on Twitter’s share price, noting that the investors depended on his silence. Carter also stated that the inability to measure damages on a classwide basis did not preclude the certification of a class.
The case is distinct from a lawsuit in San Francisco federal court, where a jury determined on March 20 that Musk was liable for attempting to lower the takeover price by raising concerns about whether Twitter was inundated with fake and spam accounts, or bots. The determination of damages remains pending. Musk is anticipated to file an appeal. The SEC also filed a lawsuit against Musk regarding his disclosure of his 5 percent stake in Twitter. On March 17, both parties revealed that negotiations for a settlement were in progress.
