Jury finds Elon Musk liable for misleading investors

A jury has found Elon Musk liable for defrauding investors by deliberately driving down Twitter’s stock price in the tumultuous months leading up to his 2022 acquisition of the social media company for $44 billion. But it absolved him of some fraud allegations, finding that he did not “scheme” to mislead investors.

The civil trial in San Francisco centred on a class-action lawsuit filed just before Musk took control of Twitter, which he later renamed X. Jurors were asked to decide if two tweets and comments Musk made on a podcast in May 2022 amounted to him intentionally defrauding Twitter shareholders, who sold their shares based on Musk’s statements.

The nine-person jury returned the verdict after nearly four days of deliberation, nearly three weeks after the trial began on March 2. They said that while Musk was liable for misleading investors with two tweets - including one that said the Twitter deal was “temporarily on hold,” he did not do so with a statement he made on a podcast and that he did not intentionally “scheme” to defraud investors.

The jury awarded shareholders between about $3 and $8 per stock per day as damages, which the plaintiffs’ lawyers said amounts to about $2.1 billion in stock and another $500 million in options. Musk’s fortune is currently estimated at about $814 billion, much of it tied up in Tesla shares. “It’s an important victory, not just for investors of Twitter, but for the public markets,” said Mark Molumphy, an attorney for the plaintiffs. “I think the jury’s verdict sends a strong message that just because you’re a rich and powerful person, you still have to obey the law, and no man is above the law.” Musk’s legal team referenced other cases Musk won and said they will appeal. “Last month, Elon won the largest appellate victory in this country’s history after getting an unfair shake at the trial level. Earlier today, in a Texas court, he won another appellate victory in which the trial judge was reversed,” the legal team at Quinn Emanuel Urquhart & Sullivan said in a statement. “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.”

Much of the trial focused on Musk’s claims about the number of bots on Twitter. Musk testified that Twitter had a much higher number of fake and spam accounts than the 5 per cent it disclosed in regulatory filings. He used what he called Twitter’s misrepresentation of the number of fake accounts on its service as a reason to retreat from the purchase.

After Musk tried to back out, Twitter went to court in Delaware to force him to honor his original deal. Just before that case was scheduled to go to trial, Musk reversed course again and agreed to pay what he had originally promised.

The central question of the case was whether Musk sent out tweets - including one on May 13, 2022, that said the Twitter deal was “temporarily on hold” while he sought information on the number of fake accounts on the service - as a deliberate scheme to tank Twitter’s shares. The jury found that while Musk did mislead investors with two tweets, he did not do so with a statement he made on a podcast because it was an opinion.

The jurors also absolved him of scheming to drive down the stock.

The nearly three-week trial in San Francisco federal court for the Northern District of California saw testimony from former Twitter executives, including CEO Parag Agrawal and CFO Ned Segal, as well as Musk, who was on the stand for more than a day.

In his testimony, Musk maintained that Twitter’s leadership lied about the number of bots on the platform and withheld information from him about how the number of fake accounts was calculated. He repeatedly described the information that Twitter’s board provided with an abbreviation for a bull’s scatology. “I did make it clear that I thought it was BS,” Musk said of Twitter’s calculations, asserting that only about 5% of its accounts were bots.

Musk also asserted that his decision to follow through on the deal at the original sales price provided a huge windfall for most Twitter shareholders.

But Twitter’s shares fell below $33, or about 40% below Musk’s original purchase price, while the deal was hanging in limbo. That downturn cost shareholders who sold their stock during the uncertainty caused by what the lawsuit alleges was Musk’s deceitful behaviour.

“I can’t control whether people sell their stock, but everyone who held the stock fared extremely well,” Musk said.

The plaintiffs argued that, as Tesla’s stock price declined and buying Twitter became too expensive for Musk, he tweeted statements that drove down the stock price in the hopes he could renegotiate the deal for a lower price or get out of it altogether.

Musk’s tweets, the plaintiffs’ lawyer argued, were not some “innocent mistake” or a “stupid tweet” off the top of his head, but carefully calculated to drive down Twitter’s stock price.

In closing arguments, Mark Molumphy, a lawyer for the plaintiffs, asked jurors to hold Musk accountable and compensate thousands of investors who lost money because of tweets Musk sent, including one from May 13, 2022, that said the deal was “on hold.”

“He knew what he was doing,” Molumphy said.

Musk’s lawyers motioned for a mistrial several times during the contentious trial, contending that the billionaire Tesla CEO can’t get a fair trial in San Francisco because of animosity toward him from the public.

This isn’t 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 about eight hours testifying in a San Francisco federal trial about his plans to buy Tesla, the electric automaker that he still runs as a publicly traded company, for $420 per share in a proposed 2018 deal that never materialised. A nine-member jury absolved Musk of wrongdoing in that case.

Monte Mann, a business litigation lawyer who was not a part of the case, said the “verdict sends a clear message-if you move the market with your words, you own the consequences.”

“The law has always prohibited misleading statements. What’s new is the scale and speed,” Mann said. “When one person can move billions with a tweet, the consequences of those statements are amplified - and juries are starting to take that seriously.”