Elon Musk, the CEO of Tesla and SpaceX, is currently seeking to dismiss a lawsuit filed by former Twitter shareholders. The lawsuit alleges that Musk fraudulently delayed disclosing his significant stake in Twitter, which allowed him to acquire additional shares at lower prices. Musk argues that this delay was a mistake rather than an intentional act of fraud.
Why the Disclosure Was Delayed
In a recent filing in Manhattan federal court, Musk contended it was “implausible” that he aimed to deceive shareholders by delaying the disclosure of his 9.2 percent stake in Twitter. He emphasized that there was no scheme to defraud as the delay stemmed from a misunderstanding of the U.S. Securities and Exchange Commission (SEC) rules regarding disclosure requirements.
The controversy began when Musk surpassed a 5 percent ownership threshold, triggering a mandatory disclosure by March 24, 2022, under SEC regulations. However, Musk did not disclose this information until April 4, 2022—11 days after the deadline. This delay allegedly enabled him to purchase additional shares at a lower price, purportedly saving over $200 million. Following the eventual disclosure, Twitter’s stock price, now under the name X, surged by 27 percent.
The lawsuit has been initiated by an Oklahoma public pension fund among other investors. They argue that Musk and his wealth manager, Jared Birchall, were fully aware of the SEC rules and intentionally delayed the disclosure to benefit financially. Moreover, the investors dismissed Musk’s claim that the delay was due to a misunderstanding.
Adding another layer to the case, the lawsuit also mentions an unnamed Morgan Stanley banker alleged to have helped Musk in strategizing the accumulation of Twitter shares discreetly. This claim, however, has been denied by Musk in his legal responses.
Next Steps in the Legal Battle
Despite Musk’s defense, the case continues to unfold. U.S. District Judge Andrew Carter, in September, denied an attempt to dismiss an earlier version of the lawsuit, citing sufficient evidence that Musk was aware of the disclosure requirements as he had testified about them under oath.
The case, officially known as Oklahoma Firefighters Pension and Retirement System v Musk et al, is being heard in the U.S. District Court for the Southern District of New York, under file number 22-03026. Responses from the plaintiffs’ lawyers were pending at the time of the latest updates.
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