brief effort to back out of buying
in 2022 is the
starting this week over claims the world’s richest person
manipulated the company’s stock price
to get himself a better deal.
Musk eventually paid US$44 billion for Twitter that fall,
at the US$54.20-per-share price he had originally agreed to six months earlier. But during the in-between months, a group of investors allege, Musk publicly attacked the company in a ruse to drive down its market value and benefit himself at their expense.
The trial that kicks off Monday in San Francisco federal court will cover familiar ground, namely the serial entrepreneur’s unconventional penchant for communicating with the market through tweets — which has gotten him into trouble before. Musk is expected to be the star witness.
The trial will revisit the chaotic six-month period in 2022 during which Musk waffled between a hostile takeover of Twitter, an attempted withdrawal of his offer, and ultimately, consummation of the deal after the company sued him to follow through.
The investors are zeroing in on Musk’s statements in May 2022 that he was putting the Twitter buyout “temporarily on hold,” questioning the company’s assertions over how much of the platform’s traffic was driven by spam and fake accounts known as bots.
When Musk made that announcement, Twitter shares dropped almost 20 per cent in premarket trading and closed the day down about 10 per cent. The stock remained volatile for the months ahead.
The challenge facing the investors’ legal team at trial will be to show that Musk was deliberately tanking the stock.
“Showing the intent behind Mr. Musk’s statements is one of the main hills the plaintiffs in this case must climb to win,” Kevin Haeberle, a law professor at University of California-Irvine, said in an interview. “It’s not easy, but it’s not an insurmountable barrier.”
Musk denies wrongdoing, arguing he had no intent to deceive investors.
In an unrelated 2018 settlement with the Securities and Exchange Commission, Musk agreed to have his
about “material” information involving Tesla Inc. pre-approved by an in-house lawyer. The regulator had accused him of securities fraud following his tweet that he had “funding secured” to take the electric car-maker private.
Years later, Musk fought all the way to the United States Supreme Court — in vain — to try to end the “Twitter Sitter” agreement.
Tesla investors sued him over the same tweet that caused him issues with the SEC. He prevailed in a 2023 trial in San Francisco — and it took jurors just two hours of deliberations to clear him of wrongdoing.
The billionaire has been dubbed “Teflon” Elon for his track record of winning high-stakes legal battles that many expected him to lose.
He dodged US$2 billion in damages in 2022 when he triumphed in a Delaware trial over claims that Tesla’s acquisition of SolarCity Corp. was an overpriced bailout for his cousins who founded the struggling solar panel company.
Most recently, Musk’s legal team got the Delaware Supreme Court in December to reinstate his Tesla pay package — which had set a record for executive compensation in the U.S. when he agreed to it in 2018 — after a trial judge had twice voided it in a seven-year fight.
Musk testified in all those cases, and he is likely to take the stand in the Twitter trial before Senior U.S. District Judge Charles Breyer, the younger brother of retired U.S. Supreme Court Justice Stephen Breyer.
Jill Fisch, a University of Pennsylvania law professor who teaches about securities law, credits what she described as Musk’s dynamic personality with swaying juries to side with him.
“In today’s environment, some people consider themselves to be coated in teflon when it comes to these types of claims and he’s one of them,” Fisch said.
Musk’s lead lawyer is Alex Spiro of Quinn Emanuel Urquhart & Sullivan, who has successfully defended the billionaire in several of his courtroom clashes. Spiro was also one of Musk’s main advisers in the Twitter buyout. The investors’ lawyers tried and failed to get Spiro disqualified from Musk’s trial team, arguing that they might call him as a witness.
Musk and lawyers on both sides of the dispute didn’t respond to requests for comment.
Lawyers for the Twitter investors contend Musk’s public statements about putting the buyout on hold “caused immediate panic that the deal was in jeopardy” — even while he knew that work on the takeover was continuing.
Musk’s tweet on May 13, 2022, was false and misleading because it clearly created an “impression of a state of affairs that differs in a material way from the one that actually exists,” investors said in court filings. The investors have not disclosed how much they are seeking in damages.
The investors also have targeted a follow-up tweet four days later in which Musk said the “deal cannot move forward” unless the chief executive officer of Twitter showed proof that less than five per cent of the platform’s accounts were fake.
“Musk’s purported interest in Twitter’s spam calculations was a pretext for getting out of the deal or renegotiating a lower price,” lawyers for the plaintiffs said in a court filing.
Musk’s legal team countered in filings that he “understood the statements to be true at the time they were made” and they were not part of a scheme to drive down Twitter’s stock price.
In a reprise of Musk’s defence in the 2023 Tesla tweet fraud trial, his lawyers are challenging the claim that he caused losses for Twitter shareholders, contending it’s impossible to link his tweets to stock price movements.
During jury selection in February, almost half of the prospective jurors were dismissed for admitting they could not be impartial, with many voicing negative views of Musk, according to Bloomberg Law.
However Musk fares in the trial, he still faces other complaints over his purchase of Twitter, including an investor suit in New York federal court and an SEC case in Washington. He has denied wrongdoing in both.