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Elon Musk defrauded Twitter shareholders by talking down the company as he tried to renegotiate or delay his $44bn deal to buy it in 2022, a California jury has found.
Jurors in San Francisco on Friday delivered a verdict in favour of a group of investors who sued the billionaire, saying they had lost out because of Musk’s “misleading statements” in April 2022 during his takeover of the social media platform.
It marks a high-profile legal defeat for the world’s richest man, who could be liable for substantial damages, which will be determined at a later date.
The federal class action suit centred on a series of tweets Musk wrote in April 2022, weeks after committing to buy the social media company for $44bn.
He said the deal was “temporarily on hold” until Twitter executives could demonstrate that “spam/fake accounts do indeed represent less than 5% of users”. Twitter stock fell into the low $30s from a deal price of $54.20 a share, as investors priced in the risk of it collapsing.
Musk also posted that the deal “cannot move forward” until Twitter’s chief executive showed proof that under 5 per cent of accounts on the site were “fake/spam”.
The group of investors claim they lost out because they sold Twitter stock after the posts at a lower price. The acquisition closed later in 2022 at the original sale price, after the Twitter board sued Musk in Delaware court to enforce the merger agreement.
The plaintiffs claimed that Musk, who had signed a binding agreement to buy Twitter and waived his right to due diligence, should have known that he did not have the right to walk away.
As a result, they argued his tweet that the buyout was “on hold” was false because Twitter had not agreed to defer the deal. Lawyers for the investors claimed Musk was advised by his bankers on a strategy to cut the purchase price for Twitter by threatening to back out.
Jurors stopped short of concluding Musk engaged in a fraudulent “scheme” at the expense of shareholders.
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The multi-week trial in San Francisco featured testimony from Musk as well as former Twitter executives, board members and the bankers and lawyers who negotiated the transaction.
Musk told the court that he believed the alleged inflated Twitter user figures were grounds for him to be able to walk away.
“It may not have been my wisest tweet,” Musk said during his testimony earlier this month. “I am not sure I would call it incredibly stupid . . . but if it led to this trial, it probably qualifies as such.”
He has since transformed Twitter, laying off thousands of employees, renaming it X and merging it with his AI start-up xAI before rolling both into his rocket company SpaceX.