San Francisco – Elon Musk took the stand Wednesday in a shareholder trial centered on accusations that his public statements regarding Twitter – now known as X – artificially deflated the company’s stock price before his $44 billion acquisition in 2022. The lawsuit, filed in October 2022 in the U.S. District Court for the Northern District of California, alleges Musk violated federal securities laws through what plaintiffs claim were deliberately misleading statements.
The core of the case revolves around Musk’s actions following his initial agreement to purchase Twitter in April 2022. On May 13th, he announced the deal was “temporarily on hold,” citing concerns about the prevalence of spam and bot accounts on the platform. This announcement triggered a significant drop in Twitter’s stock value, and subsequent statements questioning the accuracy of Twitter’s reported user numbers further fueled volatility. Shareholders who sold stock between May 13 and October 4, 2022, are seeking damages, arguing Musk’s actions were calculated to drive down the price.
Musk’s Testimony: Stock Purchases and the “Temporary Hold”
During questioning by plaintiff’s attorney Aaron P. Arnzen, Musk defended his actions, stating he didn’t believe his early accumulation of Twitter stock in early 2022 was “material” enough to warrant public disclosure to the Securities and Exchange Commission (SEC). He testified that he frequently invests in other companies without public announcement. However, when he did begin publicly acquiring shares, Twitter’s stock price jumped 27% in a single day, a figure Musk acknowledged “sounds high.”
A key point of contention is Musk’s May 13th tweet declaring the deal “temporarily on hold” pending verification of bot account numbers. The lawsuit asserts this statement was false, as the merger agreement contained no provisions allowing Musk to unilaterally pause the acquisition. Musk countered that the tweet was simply an expression of his ongoing due diligence and likened it to informing someone you might be late to a meeting – not necessarily canceling it. Twitter’s stock fell nearly 10% on May 13, according to market data Reuters reported.
Arnzen repeatedly pressed Musk on whether he considered the potential impact of his tweets on the stock market. Musk consistently responded that he was “simply speaking his mind.”
Waived Due Diligence and Claims of Misrepresentation
The legal challenge also focuses on Musk’s decision to waive due diligence as part of his “take it or exit it” offer to purchase Twitter. This meant he forfeited the right to a thorough examination of the company’s non-public finances. Despite this waiver, Musk testified he assumed any information disclosed in SEC filings would be accurate. He later claimed Twitter “misrepresented the number of bots” and “lied” about the prevalence of fake accounts.
On July 8, 2022, after Twitter failed to provide what he deemed sufficient information regarding bot accounts, Musk announced his intention to abandon the deal. The stock closed at $36.81 that day, a 32% decrease from his initial offer price of $54.20 per share, as noted in the lawsuit.
The plaintiffs argue that Musk’s actions constituted a deliberate attempt to manipulate the stock price, either to renegotiate the terms of the deal or to escape the acquisition altogether. They allege he made “materially false and misleading statements and omissions” in violation of securities laws.
Previous Legal Battles and the X Rebrand
This isn’t the first time Musk has faced legal scrutiny over his public statements and their impact on investor confidence. In 2018, he testified in a similar trial regarding a proposed, but ultimately abandoned, deal to take Tesla private at $420 per share. He was ultimately acquitted of wrongdoing in that case.
Following a protracted legal battle, Musk ultimately offered to proceed with the original $44 billion acquisition of Twitter in October 2022, and the deal closed later that month. Since taking ownership, Musk has implemented sweeping changes, including significant workforce reductions, the dismantling of trust and safety teams, and a rollback of content moderation policies. In July 2023, he rebranded the platform as X The Verge reported.
The outcome of this current trial could have significant implications for Musk and for the standards of corporate communication in the age of social media. The court will need to determine whether Musk’s statements were genuinely based on concerns about bot accounts, or whether they were calculated maneuvers to benefit his financial interests. The trial is ongoing, and a verdict has not yet been reached. Further developments are expected as the case progresses, and the court’s decision will likely be closely watched by investors and legal experts alike.
Disclaimer: This article provides information for general knowledge and informational purposes only, and does not constitute legal or financial advice.
What are your thoughts on the role of social media in influencing stock prices? Share your opinions in the comments below.
