Jury finds Musk misled Twitter investors prior to 2022 acquisition

(SeaPRwire) –   A jury has determined that Elon Musk committed fraud against Twitter Inc. investors in 2022 by criticizing the company as part of an attempt to acquire the social media platform at a price lower than his initial $44 billion offer. 

On Friday, jurors in a San Francisco federal court ruled that Musk purposefully deceived Twitter shareholders by tweeting that the social network—now known as X—had an excessive number of fake accounts and attempting to withdraw from the deal. The jury dismissed two of the four fraud allegations.

The eight-person jury assessed the extent to which Musk’s statements caused the company’s stock price to decline on each trading day over approximately five months. The total damages he owes to individual investors—potentially reaching hundreds of millions or even billions of dollars—will be finalized later once shareholders file their claims.

The verdict, reached after roughly three days of deliberation, represents a rare legal setback for the world’s wealthiest individual, who has earned the nickname “Teflon Elon” for his history of winning high-stakes legal battles that many expected him to lose. 

He succeeded in a 2023 trial where Tesla Inc. investors alleged he misled them with a tweet five years prior claiming he had “funding secured” to take the electric automaker private. Musk co-founded Tesla and serves as its chief executive officer.

Mark Molumphy, a lawyer representing the investors, stated after the verdict that he believes damages will total $2.6 billion. However, even such a large award would not significantly impact Musk’s net worth, which stood at $661.1 billion on Friday according to the Bloomberg Billionaires Index.

“This case is far more significant than just Twitter; it goes to the core of Wall Street and recent developments there,” said Joseph Cotchett, Molumphy’s partner at Cotchett, Pitre & McCarthy LLP. “It’s a clear example of actions that are off-limits to ordinary investors.”

Musk’s legal team declined to comment in the courtroom. Musk did not immediately respond to a request for comment.

In federal court, the losing party has the option to file an appeal.

Jurors heard approximately two weeks of live testimony from Musk and top Twitter executives from that time, who recounted the chaotic six-month period in 2022 when the serial entrepreneur vacillated on whether to proceed with the acquisition, leading to intense legal disputes with Twitter’s board to enforce the deal.

Investors alleged that Musk’s social media posts and public remarks—including a May 13, 2022, tweet stating the deal was “temporarily on hold” pending a review of the number of bots counted as Twitter users—were part of a deliberate strategy to lower the company’s stock price and renegotiate a better deal.

Molumphy told the jury during his closing argument on Tuesday that Musk’s tweets “were not simple errors or careless posts he didn’t think through.”

“They were intentional, calculated, and designed to convey to investors that Twitter was overrun with spam,” Molumphy said.

Musk testified for an entire day and part of another, largely adhering to his prepared narrative as he told the jury he believed former Twitter executives—including Chief Executive Officer Parag Agrawal and Chief Financial Officer Ned Segal—had lied to him and in public financial reports regarding the prevalence of spam and fake accounts (referred to as bots) on the platform.

“Naturally, people started discussing renegotiation once the bot issue emerged,” Musk’s attorney, Michael Lifrak of Quinn Emanuel Urquhart & Sullivan LLP, told the jury in his closing argument. “There was no secrecy about that.”

The stock remained volatile for several months as Musk wavered on finalizing the deal, erasing billions of dollars from Twitter’s market value. When Twitter sued Musk in Delaware in July 2022 for backing out of the purchase, shares dropped to a low of $32.52, 40% below Musk’s buyout price. 

Musk testified that he agreed to proceed with the deal at the original $54.20 per share price only because he believed the Delaware judge overseeing Twitter’s lawsuit was biased against him.

The billionaire argued that his tweet central to the lawsuit was distinct from entirely abandoning the deal. “I’m not saying I won’t go through with it,” he told the jury. “I never stated the deal was canceled.”

However, under questioning from an investor’s lawyer, Musk acknowledged that the “temporarily on hold” tweet was a mistake. “It might not be my wisest tweet,” he said. “I wouldn’t call it my dumbest, but if it led to this trial, it probably qualifies.” 

The case is Pampena v. Musk, 22-cv-05937, US District Court, Northern District of California (San Francisco).