Elon Musk took the stand in a San Francisco courtroom on Wednesday during a shareholder trial that accuses him of making misleading statements that led to a drop in Twitter’s stock price prior to his $44 billion acquisition of the platform in 2022. The lawsuit, filed in October 2022 in the U.S. District Court for the Northern District of California, represents Twitter shareholders who sold their stock between May 13 and October 4, 2022, shortly before Musk finalized his purchase. It claims Musk violated federal securities laws by creating false public statements that were designed to devalue Twitter’s shares.
Musk’s acquisition of Twitter was announced in April 2022, but on May 13, he stated that the deal was “temporarily on hold,” citing the need to evaluate the number of spam accounts on the platform. This declaration led to a significant drop in Twitter’s stock. Shortly after, Musk tweeted that the acquisition “cannot go forward” due to his belief that nearly 20% of Twitter accounts were fake, as per the lawsuit’s claims.
During questioning by plaintiff’s attorney Aaron P. Arnzen, Musk was asked about his messages regarding the acquisition and his prior stock purchases. Dressed in a black suit and tie, Musk responded that he didn’t consider his acquisition of Twitter stock to be “material” information that necessitated disclosure to the Securities and Exchange Commission (SEC). He mentioned that he had invested in various companies without posting about those transactions. Following his disclosure of owning Twitter stock, the company’s stock jumped 27% in one day.
The plaintiff’s attorney pointed out that Musk’s May 13 tweet was misleading because the deal had not genuinely been placed on hold, as Twitter had not consented to such an action, and no provisions in their merger agreement allowed Musk to suspend the negotiations. Arnzen pressed Musk on whether he considered the potential market impact of his statements, to which Musk repeatedly replied, “I was simply speaking my mind.”
In the weeks that followed, Musk continued to assert doubts about the deal, primarily citing concerns over the prevalence of bots on Twitter. By July 2022, he announced plans to withdraw his offer, alleging that Twitter had not provided adequate accounts on the number of fake profiles, despite having previously waived due diligence in his bid. Musk admitted during the trial that he did not inquire about Twitter’s methodology for estimating the number of fake accounts prior to waiving due diligence but assumed that any data provided in an SEC filing would be accurate. He later suggested that Twitter had misrepresented the number of bots, claiming, “They lied.”
After Musk’s tweet on July 8, which indicated he was abandoning the deal, Twitter’s stock closed at $36.81, significantly below his offer price of $54.20 per share. The lawsuit alleges that Musk made materially false statements designed to manipulate the market and delay the acquisition, violating legal standards.
The issue of bots on Twitter is not a new one; the company previously paid $809.5 million in 2021 to settle claims of overstating its growth rates and user numbers. Twitter had disclosed its bot estimates to the SEC and cautioned that its figures could be underestimated.
Following Musk’s initial attempt to back out, Twitter sued him to enforce the deal, leading Musk to countersue. Ultimately, on October 4, 2022, Musk proceeded with his original offer, which Twitter accepted, and the acquisition was completed later that month. Subsequently, Musk made sweeping changes at Twitter, including significant workforce reductions, restructuring of the trust and safety teams, and rolled back content moderation policies. In July 2023, he rebranded Twitter as X.
Musk’s history with contentious court cases over investor communications is notable. He previously faced a trial three years ago concerning his tweets about acquiring Tesla for $420 per share in a deal that did not materialize, where a jury found him not at fault.
