Lawyers for billionaire Elon Musk on Monday filed a motion to dismiss a class-action lawsuit claiming the mogul's late disclosure of his growing stake in Twitter prior to his purchase of the company hurt investors.
The class action, which is led by Oklahoma Firefighters Pension & Retirement System, Oklahoma City, was originally filed in federal court in New York in April by Marc Bain Rasella, an investor who sold Twitter shares at what he claims were artificially deflated prices.
In its complaint filed in November, Oklahoma Firefighters accused Mr. Musk of "knowingly and recklessly concealing his significant ownership stake in Twitter, which he was legally required to report, so he could buy Twitter stock at artificially discounted prices and continue his takeover of Twitter without public scrutiny for as long as possible."
Oklahoma Firefighters claimed that by concealing his interests in Twitter, Mr. Musk saved more than an estimated $200 million in Twitter stock purchases. Meanwhile, investors who sold their shares were cheated out of the true value of their securities because they sold at prices that were "kept artificially low by Musk's violation of his disclosure obligations," the lawsuit claims.
In the complaint, the $3.1 billion Oklahoma pension fund attacked Mr. Musk for failing to file a required disclosure with the SEC within 10 days of acquiring a 5% ownership stake in Twitter.
Mr. Musk crossed the 5% threshold on March 14, but only filed the required Schedule 13 disclosure on April 4, according to the lawsuit.
On March 25, one day after the 10-day deadline to disclose, Mr. Musk had secretly purchased nearly 60 million shares of Twitter stock at a cost of over $2 billion, the lawsuit said.
Upon disclosing his ownership stake in Twitter on April 4, the company's share price jumped by more than $10 a share, or 27%, from the prior trading day.
"Thus, everyone who sold Twitter stock or traded its other securities while Musk illegally withheld his interest in and intentions for Twitter were fraudulently deprived of enormous value for their securities," the lawsuit claims.
Oklahoma Firefighters sold 14,367 shares of Twitter stock during the period from March 24 to April 1, according to legal documents.
Lawyers for Mr. Musk brushed off the lawsuit as having "no legal basis," saying that late disclosures have "no private right of action for damages."
In their motion to dismiss the case, lawyers also argued that the plaintiffs failed to prove that they directly relied on the alleged misstatements or omissions.
In addition, the lawyers rejected the allegation that Mr. Musk deliberately, and with intent to mislead, failed to make timely disclosure of his acquisition of 5% of Twitter stock, arguing that it was a "non-fraudulent inadvertence."
Oklahoma Firefighters did not respond to a request for comment.
The case is Marc Bain Rasella vs. Elon R. Musk.
