Elon Musk Found Liable for Misleading Twitter Shareholders in $44 Billion Acquisition

A federal jury in San Francisco has found Elon Musk liable for misleading Twitter shareholders during his $44 billion acquisition of the social media platform in 2022. The verdict concluded that Musk's public statements in May 2022, particularly two specific tweets, contained materially false or misleading information that contributed to a decline in Twitter's share price.

While finding Musk liable for misleading investors, the jury also absolved him of broader allegations that he engaged in a "scheme" to defraud investors. The verdict could result in damages ranging from approximately $2.1 billion to $2.6 billion, calculated at $3 to $8 per stock per day for affected shareholders.

Jury's Decision: False Statements Identified

After nearly four days of deliberation, a jury in San Francisco's federal court delivered its verdict in a class-action lawsuit filed by Twitter shareholders. The lawsuit, Pampena v. Musk, represented individuals who sold their Twitter stock between May 13 and October 4, 2022. The jury determined that Musk violated a federal securities rule prohibiting false and misleading statements that impact stock prices.

The jury specifically identified two tweets posted by Musk in May 2022 as materially false or misleading:

• A tweet on May 13, 2022, stated: "Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users." This tweet was followed by a nearly 10% decline in Twitter's share price.
• A subsequent tweet, referenced by different sources as May 17 or May 27, 2022, suggested: "20% fake/spam accounts, while 4 times what Twitter claims, could be much higher. My offer was based on Twitter’s SEC filings being accurate. Yesterday, Twitter’s CEO publicly refused to show proof of <5%. This deal cannot move forward until he does."

Conversely, the jury did not find Musk responsible for a comment made during a conference on May 16, where he also claimed that 20% of Twitter users were spam accounts, determining it to be an opinion that did not mislead investors. Furthermore, the jury dismissed the plaintiffs' broader allegations of a deliberate "scheme" to defraud shareholders.

Allegations and Trial Overview

The class-action lawsuit alleged that Musk's public statements and tweets in May 2022 were designed to lower Twitter's stock price. Plaintiffs argued that as the value of his Tesla stock, which he intended to use for the acquisition, declined, Musk sought to either renegotiate the $44 billion purchase agreement at a reduced price or withdraw from it entirely. Shareholders testified that they sold their shares at reduced prices during the period of uncertainty created by Musk's communications.

The trial, which lasted nearly three weeks, included testimony from Musk himself, as well as former Twitter executives such as CEO Parag Agrawal and CFO Ned Segal. Musk's legal team had attempted to motion for a mistrial multiple times, citing concerns about his ability to receive a fair trial in San Francisco.

Musk's Rationale and the Acquisition Saga

During his testimony, Elon Musk maintained that the acquisition deal warranted re-negotiation or termination because he believed Twitter's board had misled him regarding the percentage of fake or 'bot' accounts on its platform. He described the information provided by Twitter's board on bot calculations as "BS" and stated, "I was pretty upset with the Twitter board because I felt they had engaged in fraud."

Musk asserted that his tweets represented him "speaking his mind" and testified he did not believe his posts would affect markets, acknowledging, "If this was a trial about whether I made stupid tweets, I would say I’m guilty."

The issue of bots and fake accounts had been previously addressed by Twitter. In 2021, the company paid $809.5 million to settle claims of overstating its growth rate and monthly user figures. Twitter had also disclosed its bot estimates to the Securities and Exchange Commission for years, noting that its estimates might be too low.

Musk formally notified Twitter in July 2022 of his intent to terminate the acquisition agreement, citing accusations of fraud against the company and its executives.

Twitter subsequently filed a lawsuit in Delaware to compel him to honor the original agreement. Musk later reversed his decision and completed the acquisition at the initially agreed price of $54.20 per share in October 2022, just before the Delaware case was scheduled for trial. He testified that he proceeded with the deal based on advice from his lawyers, who suggested that the Delaware Chancery Court Chancellor Kathleen St. Jude McCormick, overseeing the case, was "extremely biased" against him. He referenced McCormick's later decision in January 2024 to void his $55 billion pay package as Tesla CEO, a ruling subsequently overturned by the Delaware Supreme Court. Musk also noted that completing the deal at the original price resulted in a significant benefit for most Twitter shareholders who held their stock. The acquisition led to Musk selling $4 billion in Tesla stock. Twitter was subsequently rebranded as X.

Potential Damages and Next Steps

Attorneys for the plaintiffs have estimated the potential damages at approximately $2.6 billion, based on the jury's calculation of between $3 and $8 per stock per day for affected shareholders.

Following the verdict, lawyers for Elon Musk stated their client intends to appeal the decision. Mark Molumphy and Joseph Cotchett, attorneys representing the former shareholders, indicated that the case underscored the principle of accountability, regardless of financial status.

This verdict marks a legal development for Musk, who was cleared by a jury in the same San Francisco court in 2018 of similar charges related to his tweets about taking Tesla private.