Elon Musk denies tweets misled Twitter investors ahead of purchase

Just before the Fourth of July holiday, Elon Musk moved to dismiss a lawsuit alleging that he intentionally misled Twitter investors in 2022 by failing to disclose his growing stake in Twitter while tweeting about potentially starting his own social network in the weeks ahead of announcing his plan to buy Twitter.

Allegedly, Musk devised this fraudulent scheme to reduce the Twitter purchase price by $200 million, a proposed class action filed by an Oklahoma Firefighters pension fund on behalf of all Twitter investors allegedly harmed claimed. But in another court filing this week, Musk insisted that "all indications"—including those referenced in the firefighters' complaint—"point to mistake," not fraud.

According to Musk, evidence showed that he simply misunderstood the Securities Exchange Act when he delayed filing a Rule 13 disclosure of his nearly 10 percent ownership stake in Twitter in March 2022. Musk argued that he believed he was required to disclose this stake at the end of the year, rather than within 10 days after the month in which he amassed a 5 percent stake. He said that previously he'd only filed Rule 13 disclosures as the owner of a company—not as someone suddenly acquiring 5 percent stake.

Musk claimed that as soon as his understanding of the law was corrected—on April 1, when he'd already missed the deadline by about seven days—he promptly stopped trading and filed the disclosure on the next trading day.

"Such prompt and corrective disclosure—within seven trading days of the purported deadline—is not the stuff of a fraudulent scheme to manipulate the market," Musk's court filing said.

As Musk sees it, the firefighters' suit "makes no sense" because it basically alleged that Musk always intended to disclose the supposedly fraudulent scheme, which in the context of his extraordinary wealth, barely saved him any meaningful amount of money when purchasing Twitter.

The idea that Musk "engaged in intentional securities fraud in order to save $200 million is illogical in light of Musk’s eventual $44 billion purchase of Twitter," Musk's court filing said. "It defies logic that Musk would commit fraud to save less than 0.5 percent of Twitter’s total purchase price, and 0.1 percent of his net worth, all while knowing that there would be 'an inevitable day of reckoning' when he would disclose the truth—which was always his intent."

It's much more likely, Musk argued, that "Musk’s acknowledgement of his tardiness is that he was expressly acknowledging a mistake, not publicly conceding a purportedly days-old fraudulent scheme."

Arguing that all firefighters showed was "enough to adequately plead a material omission and misstatement"—which he said would not be an actionable claim under the Securities Exchange Act—Musk has asked for the lawsuit to be dismissed with prejudice. At most, Musk is guilty of neglect, his court filing said, not deception. Allegedly Musk never "had any intention of avoiding reporting requirements," his court filing said.

The firefighters pension fund has until August 12 to defend its claims and keep the suit alive, Musk's court filing noted. In their complaint, the fighterfighteres had asked the court to award damages covering losses, plus interest, for all Twitter shareholders determined to be "cheated out of the true value of their securities" by Musk's alleged scheme.

Ars could not immediately reach lawyers for Musk or the firefighters pension fund for comment.

Musk argued his tweets were not misleading

A huge chunk of the firefighters' complaint hinges on a claim that Musk's tweets during the time of his trading allegedly misled Twitter investors by cloaking Musk's active interest in buying Twitter.

Musk defended his tweets against claims that he was intentionally trying to mislead the market by tweeting that he was interested in creating his own social media platform or joking that he might buy Twitter. According to Musk, because investors had no idea about his growing stake in Twitter, these tweets could not be considered misleading.

"If anything," the “teasing” tweets "undermine" firefighters' claims, Musk argued, "because they potentially brought unwanted attention" to Musk secretly amassing a large stake in Twitter. Arguably this more likely tipped off investors to his interest in purchasing Twitter than obscuring it, Musk claimed.

Musk also tried arguing that his tweets were misunderstood. For example, Musk responded to a Twitter user joking that he should buy the platform and replace the bird logo with a Dogecoin logo by tweeting, "Haha that would be sickkk."

The firefighters pension fund had argued that Musk left out "critical information that he already owned nearly 10 percent of the company" when tweeting his response. But in his court filing, Musk argued that "Musk was referring to the user’s joke about making Doge Twitter’s logo" as being "sickkk," not the idea of him buying Twitter.

"Even assuming the tweet made a representation about buying Twitter, Plaintiff does not explain how Musk’s existing ownership of Twitter stock renders a statement that it would be 'sickkk' to buy all of Twitter misleading," Musk's court filing said. It also noted that Musk didn't text the former CEO of Twitter, Parag Agrawal, to express interest in buying Twitter until after this exchange was posted.

"Plaintiff fails to establish how Musk’s tweets were false or misleading," Musk's filing said. "If anything, Musk’s tweet suggested to the market that Musk had more interest in a Twitter takeover than he actually did at the time, the exact opposite of Plaintiff's theory."

It’s not illegal to keep trading secret, Musk argued

The firefighters pension fund showed the courts texts from Musk's banker—Jared Birchall, who is also a defendant in the suit—showing that he was determined to keep the trading "absofuckinglutely quiet" to avoid the prospect that "anyone sniff anything out."

Musk defended keeping this strategy secret as completely normal in the trading world.

"The desire to maintain secrecy 'give[s] rise only to the inference that' Musk 'did not want' certain conduct known—which indicates nothing about intent to defraud," Musk's filing said.

Musk cautioned that it could set a confusing precedent if the court agreed with the firefighters' pension fund that showing that he kept his trading secret was all that was needed to show intent to deceive Twitter investors.

"If 'secrecy' were sufficient" to show intent of wrongdoing, Musk's filing said, "the trading practices of virtually every investment firm in America would be sufficient" to show wrongdoing.

"Simply put, Plaintiff does not—and cannot—allege that it is unusual to not disclose one’s trading strategy to the market," Musk argued.

Further, if Musk so desperately needed to keep his trading strategy secret to support his alleged scheme, Musk would never have told Twitter leadership that his stake had risen above 5 percent, Musk argued.

"The fact that he shared such information with Twitter leadership undermines" claims of "wrongdoing," Musk argued. "If Musk knew he was violating Rule 13, he would have kept his secret not only from the market but also from Twitter leadership, especially because Twitter had its own reporting obligations."