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Elon Musk at the Elysee Palace, in Paris, on May 15.Michel Euler/The Associated Press

Elon Musk was ordered by a U.S. judge 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 decision made public on Monday, U.S. District Judge Andrew Carter said shareholders in the proposed class action could try to prove that Mr. Musk intended to defraud them by waiting 11 days past a U.S. Securities and Exchange Commission deadline to reveal he had bought 5 per cent of Twitter’s shares.

The judge in Manhattan also dismissed an insider trading claim against Mr. Musk, the world’s richest person.

Lawyers for Mr. Musk did not immediately respond on Tuesday to requests for comment.

Shareholders led by an Oklahoma firefighters pension fund said Mr. Musk saved more than US$200-million by adding to his Twitter stake, and quietly talking with its executives about his plans, before finally disclosing a 9.2-per-cent stake in April, 2022.

The shareholders also said they sold Twitter shares at artificially low prices because Mr. Musk hid what he was doing.

Mr. Musk’s lawyers argued that their client was “one of the busiest people on the planet,” and that any disclosure failure was “inadvertent.”

Justice Carter said he could not infer that Mr. 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 Mr. Musk understood the 5-per-cent disclosure rule, including that he had testified about it under oath, and had properly disclosed stakes in his electric car maker Tesla Inc. and the former SolarCity at least 20 times.

Katie Sinderson, a lawyer for the plaintiffs, declined to comment.

Mr. Musk bought Twitter for US$44-billion last October.

Under the SEC rule, investors have 10 days to disclose when they have acquired 5 per cent of a company.

Twitter shares rose 27 per cent on April 4, 2022, to US$49.97 from US$39.31, after Mr. Musk revealed his 9.2 per cent stake. Mr. Musk’s takeover valued Twitter at US$54.20 a share.

The case is Oklahoma Firefighters Pension and Retirement System v. Musk et al, U.S. District Court, Southern District of New York, No. 22-03026.

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