A motion to dismiss filed on Monday by Twitter CEO Elon Musk says a company shareholder’s securities fraud suit is flawed because no private right of action exists and the claims are otherwise meritless. The events giving rise to the suit date to last April, when Musk’s ownership surpassed 5% of Twitter triggering Securities and Exchange Commission (SEC) disclosures, which Musk made ten days late, allegedly earning him a $143 million windfall.
Lead plaintiff Oklahoma Firefighters Pension and Retirement System is a public pension fund that manages nearly $4 billion in assets. It sued over Musk’s untimely disclosure pursuant to Section 13(d) of the Securities Exchange Act of 1934 and SEC Rule 13d-1(a) promulgated thereunder.
In this week’s dismissal bid, Musk claims that neither the plaintiff nor the putative class suffered out-of-pocket losses. Instead, he defends that their claims revolve around a hypothetical world in which he disclosed his acquisition of Twitter stock at an earlier time.
The theory continues that this would have caused the stock to experienced the same rise it experienced in response to his ultimate disclosure, allowing investors who sold shares between March 25, the first day Musk was required to disclose his interest in Twitter, and Apr. 4, 2022, the day Musk made that disclosure, to have earned more than they actually did.
The suit says that the plaintiff is in fact trying “to harness the spectacle around Musk, his Twitter acquisition, and prior, unrelated public statements to obscure the straightforward fact that Plaintiff’s causes of action have no legal basis.”
Substantively, Musk argues that Second Circuit case law makes clear that the plaintiff cannot recover damages for a breach of Section 13(d) by seeking damages under the insider trading provisions of the same act.
Among other arguments, the motion takes a swipe at the plaintiff’s allegations of scienter. “The inference Plaintiff seeks—that Musk deliberately, and with intent to mislead, failed to make timely disclosure of his acquisition of 5% of Twitter stock or his purported intentions around control—is not remotely cogent or compelling,” the motion says, pointing to no reason why Musk would conceal the acquisition of Twitter shares, only to disclose that purported scheme 10 days later.
The plaintiff and putative class are represented by Block & Leviton LLP and Musk by Quinn Emanuel.