A California jury has found Elon Musk liable for defrauding Twitter shareholders during his $44 billion acquisition of the social media platform. The verdict, delivered on Friday, could result in damages of up to $2.6 billion, according to plaintiffs’ attorneys.
The class-action lawsuit, *Pampena v. Musk*, was filed in October 2022, following Musk’s completion of the Twitter purchase at $54.20 per share. Twitter has since been rebranded as X and integrated into Musk’s artificial intelligence venture, xAI, and his aerospace company, SpaceX.
“This is a clear message to anyone who thinks they can manipulate the market against the average investor – individuals with 401(k)s, families, and essential workers like teachers, firefighters, and nurses,” stated Joseph Cotchett, lead counsel for the Twitter investors, speaking from the San Francisco courthouse. “This case was never about Musk himself, but about the integrity of the entire market operation.”
Musk’s legal team at Quinn Emanuel issued a statement acknowledging the verdict, saying, “We view today’s verdict, where the jury found both for and against the plaintiffs and found no fraud scheme, as a bump in the road. And we look forward to vindication on appeal.”
The legal entanglement began in April 2022 when Musk’s initial enthusiasm for the Twitter deal waned. He publicly expressed doubts about the platform’s reported metrics concerning bots, spam, and fake accounts. In a subsequent tweet, he declared his acquisition “temporarily on hold” until Twitter’s CEO could provide definitive proof that inauthentic accounts constituted only the reported 5% of users.
This uncertainty, fueled by Musk’s public statements, sent Twitter’s stock price plummeting by nearly 10% in a single trading session. After a four-day deliberation, the jury unanimously concluded that Musk’s tweets on May 13 and May 17 of that year were materially false or misleading.
Former Twitter shareholders, including a broad spectrum of retail investors and options traders, argued that Musk’s pronouncements constituted a calculated strategy to devalue the company and compel its board to accept a lower acquisition price. Their contention was that Musk’s motivation stemmed from a decline in Tesla’s stock value, which would have necessitated selling a larger portion of his Tesla holdings than initially planned to finance the Twitter takeover.
The plaintiffs maintained that they sold their Twitter shares at a price below $54.20 in direct response to Musk’s public comments and interviews. The projected $2.6 billion in damages is an aggregate based on expert analysis of how Musk’s shifting stance impacted the share price throughout the class period.
Attorneys for the investors indicated that the claims administration process would commence in approximately 90 days, followed by a several-month period for the government to process claims, after which investors could begin to see some recovery of their losses.
Conversely, Musk’s defense team argued that his remarks were rooted in genuine concerns about Twitter’s bot and spam problem, and did not constitute securities fraud or an attempt to manipulate the stock price.
The jury’s nuanced verdict found that while Musk had indeed issued false and misleading statements that negatively affected some Twitter shareholders, they did not find evidence of a specific, overarching scheme to defraud investors.
Although the verdict represents a significant setback for Musk, the financial implications are relatively modest given his considerable net worth, estimated by Bloomberg to be around $650 billion. This legal outcome, however, underscores the critical scrutiny faced by high-profile individuals and their pronouncements in the digital age, particularly when they intersect with major corporate transactions and market integrity.
The case serves as a potent reminder of the responsibilities that accompany significant influence in public markets and the legal ramifications when those statements are deemed deceptive. The resolution of this lawsuit will likely shape future dialogues around executive communication and its impact on shareholder value.
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