Elon Musk asked a U.S. judge to throw out a lawsuit claiming that his delayed disclosure of a large stake in Twitter Inc defrauded shareholders who sold Twitter stock at artificially low prices because they were kept in the dark.
In the federal court case in Manhattan, investors accused Musk, who bought Twitter for $44 billion in October, of waiting 11 days past a U.S. Securities and Exchange Commission deadline the previous March to disclose he had bought 5% of its stock.
The shareholders said Musk saved more than $200 million by adding to his holdings – while quietly meeting with Twitter executives about his plans for the social media company – before finally revealing a 9.2% stake, cheating stock sellers and options traders out of the “true value” of their securities.
But in a Monday night filing, Musk said investors in the proposed class action had no independent right to obtain damages under the SEC disclosure rule, and could not show that all class members actually relied on his silence before trading.
Musk also noted, as had the shareholders, that he had properly disclosed his stakes in electric car maker Tesla Inc (TSLA.O) and the former SolarCity Corp at least 20 times, and even mentioned the SEC rule to Saudi Arabia’s sovereign wealth fund in 2018 when negotiating a possible investment in Tesla.
Despite a “laundry list” of accusations suggesting an intent to defraud, “the most compelling inference is that any failure to disclose was inadvertent,” the world’s second-richest person said.
The shareholders are led by the Oklahoma Firefighters Pension and Retirement System. Katie Sinderson, one of their lawyers, declined to comment on Tuesday.
Under the SEC rule, investors must disclose within 10 days when they have acquired 5% of a company, which for Musk’s Twitter investment would have been last March 24.
Twitter shares rose 27% on April 4, to $49.97 from $39.31, after Musk disclosed his 9.2% stake, which investors viewed as his vote of confidence in San Francisco-based Twitter.
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.