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In a significant legal setback for billionaire entrepreneur Elon Musk, a U.S. federal magistrate judge has ruled that Musk cannot rely on the “advice-of-counsel” defense in an ongoing lawsuit that accuses him of delaying disclosure of his large Twitter stake before acquiring the social media company in 2022.
The decision, issued on October 23, 2025, by Magistrate Judge Gabriel Gorenstein of the U.S. District Court for the Southern District of New York, prevents Musk and his co-defendants from arguing that they acted based on their lawyers’ advice or had a good-faith belief in the legality of their conduct after consulting counsel.
Judge Gorenstein’s ruling states that Musk and his legal team are “precluded from offering evidence or argument that they relied on the advice of counsel or had a good faith belief in the lawfulness of their conduct after they consulted counsel on April 1, 2022.”
Background of the Case
The lawsuit stems from Musk’s acquisition of a 9.2% stake in Twitter, Inc., before his eventual $44 billion purchase of the company—now known as X Corp.—in October 2022. The Oklahoma Firefighters Pension and Retirement System, representing a class of Twitter shareholders, filed the case, alleging Musk violated federal securities laws by failing to timely disclose his substantial ownership interest.
Under U.S. Securities and Exchange Commission (SEC) regulations, investors who acquire more than 5% of a company’s stock must disclose their holdings within ten days. Musk reportedly crossed that threshold on March 14, 2022, but did not file the required disclosure form until April 4, 2022—well past the legal deadline.
The plaintiffs claim this delay allowed Musk to secretly continue buying Twitter shares at artificially low prices before the public announcement caused the stock to surge. As a result, they allege, many shareholders sold their stock without realizing the company’s true market value, suffering financial losses.
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Defense Strategy Limited
Musk’s defense initially centered around his belief that the disclosure was not required as early as the SEC alleged. He contended that he misunderstood the filing rules and acted without any intention to defraud investors. However, his legal team also hinted that Musk consulted attorneys about his disclosure obligations before filing—an argument that could have opened the door to an “advice-of-counsel” defense.
The “advice-of-counsel” defense allows a defendant to claim that they acted in good faith based on the guidance or legal advice received from qualified attorneys. However, this defense comes with a critical trade-off: once invoked, it typically waives attorney-client privilege, requiring disclosure of communications between the client and counsel related to the matter.
In this case, the Oklahoma pension fund’s attorneys pressed Musk’s legal team to clarify whether they would rely on such a defense, warning that they could not both cite legal advice as justification and withhold related communications. In August 2025, Alex Spiro, Musk’s lead attorney from Quinn Emanuel Urquhart & Sullivan LLP, confirmed in writing that the defense would not hinge on advice from counsel.
Judge’s Ruling and Implications
Judge Gorenstein’s ruling formally closes the door on Musk’s ability to later reverse course and argue reliance on his lawyers’ advice. The court’s decision was grounded in the principle of preventing defendants from using attorney advice as both a “sword and a shield”—that is, using legal advice to excuse conduct while simultaneously refusing to disclose privileged communications that could be scrutinized by the opposing side.
The judge’s order also reflects a common judicial concern in complex securities cases: maintaining fairness and transparency when privileged legal communications could shape the narrative of a defendant’s intent.
Firms Involved in the Case
Musk has worked with several prominent law firms throughout his Twitter dealings. He retained McDermott Will & Emery LLP shortly before filing the April 2022 disclosure, while Quinn Emanuel Urquhart & Sullivan LLP has continued to represent him in litigation related to the acquisition. Both firms are well-known in corporate and securities law circles.
Despite the ruling, Musk and his legal team maintain that he acted without any intent to mislead investors. They have continued to argue that Musk’s interpretation of SEC rules was made in good faith and that the lawsuit overstates the impact of the disclosure delay on shareholder value.
What Comes Next
The case continues to proceed in the Southern District of New York, with discovery and pre-trial motions ongoing. Legal analysts note that while the judge’s ruling does not determine liability, it could complicate Musk’s defense strategy, particularly since he can no longer attribute his conduct to professional legal advice.
If the case goes to trial, plaintiffs will likely emphasize Musk’s wealth of experience and sophistication as a public company executive, arguing that his knowledge of securities law should have made the disclosure obligations clear.
This lawsuit is one of several legal challenges Musk has faced since taking Twitter private in 2022 and rebranding it as X Corp. His ongoing legal battles—including those involving labor disputes, privacy regulations, and his leadership of Tesla Inc. and SpaceX—have kept him under constant regulatory and judicial scrutiny.
Broader Legal Significance
The ruling serves as a reminder for corporate executives and investors alike: the “advice-of-counsel” defense, while powerful, comes with consequences. Once defendants raise it, they must be willing to forfeit attorney-client privilege, exposing potentially sensitive communications. Judges are often reluctant to allow partial reliance on such advice without full transparency.
For Musk, who has often positioned himself as a disruptor of regulatory norms, the court’s decision reinforces that even high-profile innovators are subject to the same disclosure rules and courtroom standards as any other investor.
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