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Elon Musk is expected to take the stand in a shareholder trial on Wednesday in San Francisco, where he is accused of making false and misleading statements that drove down Twitter’s share price before he bought the social media platform for $44 billion (€37.9 billion) in 2022.
The lawsuit was filed in October 2022 in the US District Court for the Northern District of California on behalf of Twitter shareholders who sold the stock between 13 May and 4 October 2022, a few weeks before Musk’s purchase of Twitter was finalised.
It claims Musk violated federal securities laws by making false public statements that “were carefully calculated to drive down the price of Twitter stock”.
The billionaire Tesla chief executive reached a deal to buy Twitter and take it private in April 2022.
On 13 May, however, he declared his plan “temporarily on hold” and said he needed to identify the number of spam and fake accounts on the platform.
Twitter’s stock tumbled as a result. A few days later, he tweeted that the deal “cannot go forward” and claimed that almost 20% of Twitter accounts were “fake,” according to the lawsuit.
Musk’s tweet on 13 May, saying “Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users” was “false because the buyout was not, in fact, ‘temporarily on hold,'” the lawsuit states.
That is because Twitter did not agree to put the deal on hold, and there was nothing in the merger agreement the two parties signed that allowed Musk to do so, according to the lawsuit.
In the following weeks, Musk continued to try to delay or withdraw from the deal, which the lawsuit claims he did through false, disparaging statements about Twitter’s business that drove the San Francisco company’s share price down sharply.
In July 2022, Musk doubled down on the bots issue and said he would abandon his offer to buy Twitter after the company failed to provide sufficient information about the number of fake accounts.
This was despite the lawsuit noting that Musk had waived due diligence for his “take it or leave it” offer to buy Twitter — meaning he had waived his right to examine the company’s non-public finances.
The stock closed at $36.81 (€31.66) on 8 July, when Musk tweeted he was abandoning the deal over the fake accounts issue. That is 32% below Musk’s offer price of $54.20 (€46.61) per share.
“To try to renegotiate the price or delay the merger, Musk made materially false and misleading statements and omissions, and engaged in a scheme to deceive the market, all in violation of the law,” the lawsuit states.
The problem of bots and fake accounts on Twitter was not new.
The company had paid $809.5 million (€696.2 million) in 2021 to settle claims that it was overstating its growth rate and monthly user figures.
Twitter also disclosed its bot estimates to the Securities and Exchange Commission for years, whilst cautioning that its estimate might be too low.
Twitter sued Musk to force him to complete the deal, and Musk countersued.
On 4 October, Musk offered to proceed with his original proposal to buy Twitter for $44 billion (€37.9 billion), which Twitter accepted. The deal closed later that month.
In the ensuing months, Musk slashed the company’s workforce, gutted its trust and safety team and rolled back content moderation policies.
In July 2023, he renamed Twitter to X.
This is not the first time that Musk has been dragged into court to defend himself against allegations of duping investors with his social media posts.
Three years ago, Musk spent around eight hours giving evidence in a San Francisco federal trial about his plans to buy Tesla — the electric vehicle manufacturer that he still runs as a publicly listed company — for $420 (€361.20) per share in a proposed 2018 deal that never materialised.
A nine-member jury absolved Musk of wrongdoing in that case.