- Elon Musk is to face most of a lawsuit claiming he defrauded former Twitter shareholders last year.
- Musk bought Twitter for $44 billion last October.
- Under the SEC rule, investors have 10 days to disclose when they have acquired 5% of a company.
A US judge ordered Elon Musk to face most of a lawsuit claiming he defrauded former Twitter shareholders last year by waiting too long to disclose that he had invested in the social media company, which he later bought and renamed X.
In a public decision on Monday, US district judge Andrew Carter said shareholders in the proposed class action could try to prove that Musk intended to defraud them by waiting 11 days past a US Securities and Exchange Commission deadline to reveal he had bought 5% of Twitter's shares.
The judge in Manhattan also dismissed an insider trading claim against Musk, the world's richest person.
Lawyers for Musk did not immediately respond on Tuesday to requests for comment.
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 said they sold Twitter shares at artificially low prices because Musk hid what he was doing.
READ | Musk considers charging all X users monthly fee
Musk's lawyers argued that their client was "one of the busiest people on the planet" and that any disclosure failure was "inadvertent."
Carter said he could not infer that Musk was "too busy" to comply with SEC rules if he could find time to buy Twitter shares, meet with company executives, and post online about Twitter.
He also found evidence that Musk understood the 5% disclosure rule, including that he had testified about it under oath and had properly disclosed stakes in his electric car maker, Tesla, and the former SolarCity at least 20 times.
Katie Sinderson, a lawyer for the plaintiffs, declined to comment.
Musk bought Twitter for $44 billion last October.
Under the SEC rule, investors have 10 days to disclose when they have acquired 5% of a company.
Twitter shares rose 27% on 4 April 2022, to $49.97 from $39.31, after Musk revealed his 9.2% stake. Musk's takeover valued Twitter at $54.20 per share.