Judge Orders Elon Musk to Face Class Action Over Delayed Disclosure of Twitter Stakeholding

Federal Judge Allows Class Action Lawsuit Against Elon Musk

A federal judge in Manhattan has ruled that former Twitter investors who accused Elon Musk of defrauding them by waiting too long to disclose his initial investment in the social media company may pursue their case as a class action.

U.S. District Judge Andrew Carter's decision exposes the world's richest person to potentially greater damages than if investors were forced to sue individually. Musk bought Twitter for $44 billion in October 2022 and renamed it X.

The investors, led by the Oklahoma Firefighters Pension and Retirement System, claim that Musk ignored a March 24, 2022 deadline set by U.S. Securities and Exchange Commission rules to reveal he owned 5% of Twitter shares, and waited 11 more days before disclosing a 9.2% stake. This delay, the investors say, saved Musk more than $200 million and cheated them because they sold Twitter shares at depressed prices during the 11-day period.

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Investors also pointed to two March 26, 2022, tweets where Musk said he was "giving serious thought” to creating a Twitter rival, and said "Haha that would be sickkk” after someone suggested he buy Twitter and change its bird logo to a doge image. They claimed that these tweets, combined with Musk's silence on his Twitter stake, led them to rely on false information.

In opposing class certification, Musk argued that investors could not prove they relied on his alleged fraud. However, Judge Carter said Musk did not overcome the presumption that his alleged misrepresentations affected Twitter's share price, and that the investors relied on his silence.

Judge Carter also noted that the inability to measure damages classwide did not mean a class could not be certified. The case is separate from a lawsuit in San Francisco federal court, where a jury found Musk liable on March 20 for trying to drive the takeover price down by questioning whether Twitter was overrun by fake and spam accounts, or bots. Damages have yet to be determined, and Musk is expected to appeal. The SEC also sued Musk over his disclosure of his 5% Twitter stake, with both sides disclosing on March 17 that settlement talks were ongoing.

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